Many authorities and commentators have considered cryptocurrencies, and the blockchains that undergird them, as a potentially disruptive force in the financial industry. Now, that disruption has made its way to a different side of finance—bankruptcy, and during the past year, the United States bankruptcy courts have had to confront many unexpected challenges involved in dealing with cryptocurrency.
In a recent case, the High Court has had one of its first opportunities to consider BTI v Sequana [2022] UKSC 25 (see our previous update here), in which the Supreme Court gave important guidance on the existence and scope of the duty of company directors to have regard to the interests of creditors (the so-called “creditor duty”, which arises in an insolvency scenario).
The judgement raises important questions for directors faced with substantial liabilities
How close is too close? The answer to this question can have dire implications for people and companies involved in the cannabis industry who wish to seek bankruptcy protection.
The English Court of Appeal has clarified the interpretation of two aspects of s.423 of the Insolvency Act 1986, the legislation which provides a mechanism for the avoidance of transactions which have been made for the purpose of defrauding creditors:Invest Bank PSC v Ahmad Mohammad El-Husseini [2023] EWCA Civ 555.
Although not directly concerned with directors' liabilities, the recent Supreme Court judgment in Stanford International Bank Ltd v HSBC Bank PLC provides further clarity on the circumstances in which a distressed or insolvent company may seek to make claims against its directors.
INTRODUCTION
The key aspects affecting directors' liabilities presented in the Supreme Court ruling are that:
Are bankruptcy doors now opening for cannabis companies? A decision last week from a California bankruptcy court indicates perhaps so, at least for cannabis companies that are no longer operating.
Factual Background
Last November we wrote about the Fifth Circuit Court of Appeals’ decision in Highland Capital Management, L.P., where the court reversed the bankruptcy court’s approval of a plan’s exculpation clause for non-debtors and limited the universe of parties covered by that provision. Relying on Bank of New York Trust Co., NA v. Official Unsecured Creditors’ Comm.
Whose crytpo is it? With the multiple cryptocurrency companies that have recently filed for bankruptcy (FTX, Voyager Digital, BlockFi), and more likely on the way, that simple sounding question is taking on huge significance. Last week, the Bankruptcy Court for the Southern District of New York (Chief Judge Martin Glenn) attempted to answer that question in the Celsius Network LLC bankruptcy case.
There has been no shortage of high-profile insolvencies in the crypto market in recent months across a range of market participants and geographies. These include the US Chapter 11 and Bahamas provisional liquidation of FTX as well as the US Chapter 11 filings of BlockFi, Singapore-based crypto hedge fund ThreeArrows Capital, US-based lenders Celsius Network and Voyager Digital, US-based crypto mining data centre Compute North and German crypto bank Nuri.