Barry Cahir
President of
INSOL Europe

What happens in the event of crypto exchanges’ insolvency procedures such as the case of the recently collapsed FTX?

Shedding light on the nature of digital assets in these cases is of the utmost relevance. If considered property, it leads us to the question of whose property it is. Are they simply assets of the estate and, therefore, customers are just creditors? Or are they assets of the customers which could then lead them to request the segregation of their assets from the insolvency estate?

At INSOL Europe, we have been aware that, sooner rather than later, we will all be involved with digital assets in restructuring and insolvency proceedings. This is why our Insolvency Tech & Digital Assets Wing created the Insolvency Tech & Digital Assets Worldwide Case Register in 2021, with contributions, so far, from Estonia, Poland, Spain, Turkey, the UK and the US. New contributions from Italy, Japan, New Zealand and the Netherlands are expected in the near future.

José Carles, co-chair of the Insolvency Tech & Digital Assets at INSOL Europe (pictured above), commented some of these precedents at the American Bankruptcy Institute’s panel on “Cryptocurrency and Cross-Border Insolvency Law” at the “Cross-Border Insolvency Program” held on November 14th in New York, together with some of the lawyers that are working on the Three Arrows Capital, Celsius or Voyager files. Visit our website for more information about the Insolvency Tech & Digital Assets Wing.

The recent overhaul of the insolvency framework by virtue of ‘Law 4548/2020 on Debt Settlement and Facilitation of Second Chance’(the Insolvency Law) has proved a game-changer as far as digitalization and data collection is concerned in Greece, writes Yiannis Bazinas of Bazinas Law Firm. 

In particular, the Insolvency Law has established a unified Solvency Registry, where all notifications regarding the various insolvency and restructuring procedures must be published.

Such information ranges from the issuance of insolvency judgments and the ratification of rehabilitation agreements to less consequential procedural steps, such as the sealing of the insolvent estate, the conclusion of contracts by the insolvency practitioner etc. Judging from the breadth of available information, the Solvency Registry constitutes the first ever database on insolvency and restructuring statistics in the country. 

The system first took effect in March 2021. Since then, there have been a total of 1097 registry entries designated as the filing of insolvency applications. The vast majority of such applications (88%) relate to individual debtors, which was an expected development, considering that the new Insolvency Law extended insolvency eligibility to consumers for the first time. A striking feature is that most insolvency applications (90%) have been filed during 2022. This can be partially attributed to the delayed familiarization of debtors with the new available procedures but also reflects the growing financial pressures that businesses and households are currently facing, as a result of inflation and the energy crisis. 

According to the registry, there have been 336 declarations of insolvency, 89% of which relates to natural persons, whereas the remaining have been dismissed, withdrawn or currently pending before the insolvency courts. The absence of any reliable historical data makes it difficult to consider emerging trends but the general impression is that the number of insolvency filings and judgments is significantly higher than previous years, which can largely be attributed to the inclusion of consumers within the new Insolvency Law’s scope. 

Further statistics from Greece and from all jurisdictions can be found on our website here.

Experienced cross-border insolvency practitioners know that communication and cooperation is fundamental to success, but how is this evolving and what developments should we expect?

Communication and cooperation is the bridge between different insolvency proceedings involving the same debtor with assets in different jurisdictions. The objective is to enhance overall efficiency and minimise total costs, maximising returns to the creditors as a whole.

Of course, cooperation may lead to an apparently sub-optimal outcome in one jurisdiction while producing a better outcome for the debtor’s estate and the creditors as a whole. A simple example is allowing a business with interdependent units in different jurisdictions to be sold in a single transaction as a going concern. 

The intangible assets in the main (EU) jurisdiction would have limited value if the business and assets were sold piecemeal, but a very high value in a going concern. The non-main (UK) jurisdiction business unit is smaller and has tangible assets that would generate good value if sold piecemeal. Neither business unit can exist separately as a going concern. 

The non-main practitioner might seek a piecemeal asset sale for the best result in that jurisdiction and be resistant to cooperation, whereas the main practitioner would prefer to cooperate and achieve a going concern sale of the whole business, yielding a better return to creditors overall.

Communication and cooperation occur both at the insolvency practitioner level and between courts. As an insolvency practitioner (and not a lawyer), Chris Laughton, Consultant (Mercer & Hole, London) will concentrate on the former aspect in a forthcoming Eurofenix article.

We are pleased to announce that plans are well under way for the return of our EECC Conference, to be held in Vilnius, Lithuania, on 19 May 2023. An optional drinks reception will be held on the eve of the conference to welcome the delegates to the beautiful city. Look out for more details coming soon on our website.