How should crypto influence decision making?

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Gateley Omega

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It has been over a decade since the Bitcoin White Paper was released, however, do people still overlook Bitcoin and other crypto as an asset class?

While the status of crypto as a currency remains in the air, it does hold great, albeit ever-fluctuating value. This may have important repercussions if you are in one of the following situations:

  • valuing a business portfolio
  • auditing
  • taking security or offering credit
  • enforcing judgment
  • insolvency

In this insight, we will consider how the existence of crypto could influence the decision making of a potential claimant. We will look at more unique scenarios later on in the series – such as the implications of crypto for insolvency practitioners.

Potential legal action

Firstly, we need to assess the risk of any potential legal action. Will the claim make a profit? If you win the case, will the defendant still have assets left at the end of it? If so, how easily could you enforce against these assets? Let's suppose that the claimant has discovered that the defendant holds crypto. With just a little bit of digging, you might find that a retailer defendant accepts crypto. Alternatively, a defendant may have been asking on social media platforms about whether they should move from Bitcoin to other cryptocurrencies such as privacy coins…the irony. 

Once you know that crypto may feature in the assets in a case, our Civil Procedure Rules set out a range of orders which a Court may, if persuaded, grant at any time (including before Court proceedings), to secure assets. The Court has unfettered discretion to order other remedies - because of the nature of cryptocurrencies, securing an asset might require a more creative approach to the standard orders. Here are some examples:

Freezing orders

Usually compel the defendant to provide a declaration of their assets. The claimant might need to think about whether a worldwide order is necessary in order to capture money held on an offshore exchange. Careful: some outdated standard declaration forms won’t include crypto on their list of assets to be declared by the defendant! Even in cases where there is a mop up provision, you should include a specific provision for crypto to be declared so that it is not “overlooked”.

Search and Seizure (“SAS”) Orders

Even if a freezing order is obtained without notice to a defendant, the practicalities of then obtaining and maintaining control of crypto for example if the private key was compromised or if the freezing order is breached and/or subsequently making a recovery of the value of the lost crypto can be far more complicated than with physical assets or even cash at bank which has been transferred away. That raises the question; is a freezing order sufficient or is a defendant likely to move the crypto before they declare their assets? An order permitting you to enter premises without notice to the Defendant to search for and seize cryptocurrency, so it can be transferred to a wallet within your control, may be required.

Practical considerations

  1. Explaining everything to the judge. This might be more challenging depending on which Court you are in. This may factor in to where you issue if you have a choice.
  2. Ensure that the order includes permission to access computers, electronic devices, to look for electronic or hard wallets, to take images or to run seed carving software and to move crypto to a secure wallet.
  3. Find a supervising solicitor that understands the world of crypto. The solicitor needs to know what is reasonably necessary to implement the order.
  4. Have a plan of action for recovering the asset if you find it. Have a trained, insured, crypto recovery tech on-site to recover and securely store the crypto. This is vital!
  5. Decide if you need an order in advance allowing you to sell the crypto. As well as this, considering the volatility of the price of crypto, you will need to know how to (and not to!) sell it to minimise your risk of criticism by the defendant around any loss of value.
  6. The possibility of a cross-undertaking in damages. This could be a hefty liability because of the fluctuating value of the crypto, irrespective of whether it will be held or sold.

You should also consider getting third parties, for example, international exchanges, to disclose information that could help to identify, trace or recover assets and it is quite likely you will need to obtain orders facilitating the disclosure of that information. 

Proportionality and commerciality may bar these options but no claimant wants to find out that their judgment debt could have been recovered if they had considered crypto as an asset from the beginning. 

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