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Cryptoassets in Cayman - destined to be 'Property'?

19 February 2020

As the English High Court describes, in the context of proprietary injunctions, the Legal Statement of the UK Jurisdiction Task Force (UKJT) on cryptoassets and smart contracts to be "an accurate statement as to the position under English Law", the Cayman courts await an opportunity to conduct their own analysis.

We now have two judgments from England (AA v Persons Unknown [2019] EWHC 3556 (Comm) and Robertson v Persons Unknown (unreported)) and one from Singapore (B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03) providing detailed rationale why and in what circumstances cryptoassets should be considered 'property'. Should we presume that as far as the Cayman courts' views are concerned, all bets are now off?

The purpose of this article is to adopt an element of clairvoyance and offer foresight into what the insolvency and restructuring landscape may look like for practitioners and attorneys alike on the presumption that cryptoassets are 'property' in the Cayman Islands.

This is what the UKJT concluded in regard to cryptoassets:

  1. That they are to be treated as property;
  2. That they can be the subject of security;
  3. That they fall within the definition of 'property' for the purpose of Section 436 (1) of the (England and Wales) Insolvency Act 1986 (Section 436).

As far as Cayman is concerned, the definition to be applied to references to 'property' in the Companies Law (2020 Revision) is taken from the Interpretation Law (1995 Revision) and is, for the most part, the same as that in Section 436. It includes:

“…money, goods, things in action, land and every description of property, whether real or personal; also obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, arising out of or incident to property as above defined."

If the Cayman courts were to adopt the approach of their English counterparts, then the tools available to the liquidator of the Cayman company would be similar to those of the English practitioner, namely:

  1. The ability to apply to court for an order for delivery up of cryptoassets belonging to the company; and
  2. To avail itself of the remedies afforded by sections 145 (voidable preferences), 146 (avoidance of dispositions at undervalue) and 147 (fraudulent trading) for the benefit of the estate.

The extent to which the above tools could be effectively used given the nature of cryptoassets is a subject which requires its own article. That said, it is worth mentioning one such potential obstacle, being the private key.

The private key is information vital to the ability to control and send the cryptocurrency. Whether the private key is 'property' or "information" may be central to the ability of the liquidator to get into and realize the cryptoassets for the benefit of the estate.

Even if it is considered to be merely "information", the Cayman practitioner should be able to seek an order from the court obliging a "relevant person" (which includes a current or former director, service provider or advisor) to deliver up property and documents belonging to the company or to swear an affidavit in response to written questions and/or be examined orally. That might be sufficient to obtain the private key, if the relevant person knows it, which, in the event of a hacking for example, might not be the case, given that the private key changes upon each transaction, including illicit transactions. When you couple this with other potential hindrances such as the inherent anonymity in cryptocurrency and the consequent difficulty in ascertaining the identity of counterparties to a transaction, you get a sense of the challenge ahead for attorneys and practitioners tasked with the liquidation of a company invested in cryptoassets.

While those yearning for clarity in the legal status of cryptoassets have been given some cause for optimism, one must remember that the Judge in AA was opining only in the context of proprietary injunctions. Nevertheless, slowly but surely, common law courts whose decisions will be persuasive to the Cayman courts are contributing to an ever-increasing body of case law on the subject.

Location: Cayman Islands

Related Service: Insolvency & Restructuring

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