Issue link: https://digital.shearman.com/i/1479657
Avoidance Powers Cryptoassets & Insolvency 32 The value of an asset plays an essential role in the context of fraudulent and preferential transfers. Transfers of assets of the bankrupt estate that are fraudulent or that prefer one creditor over another can be avoided and recovered by the trustee to distribute to the debtor's various creditors. Section 550 of the Bankruptcy Code provides that the trustee, in recovering a transfer, may recover the property of the transfer, or if permitted by the bankruptcy court, the cash value of the transferred property rather than the property itself. Issues with valuation may arise when recovery of the actual cryptocurrency is not possible because the transferee must return the value of the cryptocurrency asset rather than the asset itself (either because it is deemed a currency or because it cannot be recovered due to theft or some other reason). The value of cryptocurrencies, however, change every day. Thus, the question becomes what date should be used to determine the value of any particular cryptoasset when evaluating the trustee's avoidance powers under the Bankruptcy Code? The Bankruptcy Code does not prescribe a specific valuation date, so some courts have used the date of the fraudulent or preferential transfer, while other courts have used the date the trustee brings the recovery action or the date on which the debtor filed the bankruptcy petition. Section 550(a) of the Bankruptcy Code provides: a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from 1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or 2) any immediate or mediate transferee of such initial transferee.