UK Legal Statement on Digital Assets and English Insolvency Law

The UK Jurisdiction Taskforce (UKJT) has published a Legal Statement on Digital Assets and English Insolvency Law. The main findings are that digital assets are within the definition of "property" in the U.K. Insolvency Act 1986. Despite this, because digital assets are not treated as such, it is not possible to serve a valid statutory demand for a digital asset debt. Nevertheless, a claim to digital assets held by a company or bankrupt individual can (in principle) be a claim to recover property, depending on how the assets are held. In addition, where jurisdiction is to be determined by reference to the Centre of Main Interests, the English courts will apply the existing test to establish the COMI of a company dealing in digital assets. There are existing rules that can be applied to allocate any shortfalls where digital assets belonging to different persons have been pooled. Digital assets do not require a fundamental change to the legal analysis of tracing, mixed accounts and shortfalls (although the technical structure of digital assets may be relevant). The rules in the FCA's Client Assets Sourcebook are unlikely to apply since digital assets are not considered to be money.

The UKJT has previously published two other legal statements relevant to digital assets and cryptocurrencies. The Legal Statement on the Status of Cryptoassets and Smart Contracts was published in November 2019, the analysis of which has been adopted by the courts (e.g., AA v Persons Unknown & Ors, Re Bitcoin [2019] EWHC 3556 (Comm)). The Legal Statement on the Issuance and Transfer of Digital Securities under English private law was published in February 2023.