Cryptoassets: A New Target for Creditors?
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Rewind the clock a few years to when you started hearing terms such as ‘Bitcoin’ and ‘Blockchain’, and you were only a mere Google search away from reading a new article claiming the world of cryptocurrency was a fad; just another balloon waiting to pop. Despite forecasts from many experts, however, Crypto has since advanced, (and until recently) thrived, even, to such an extent that even the Courts of England & Wales recognise the status of cryptoassets.
Formerly known as a Garnishee Order, a third-party debt order (TPDO) is a method of enforcement allowing creditors who’ve obtained judgment from the court to recover sums a party owes them directly from third parties who hold monies on the party’s behalf, including for example a bank or building society.
The term ‘cryptocurrency’ refers to a digital or virtual currency designed to function through a computer network, which is secured by cryptography. Notably, cryptocurrency doesn’t rely on a government or banking authority to maintain it, and it’s almost impossible to counterfeit or double-spend.
The first third-party debt order in respect of cryptocurrency has recently been granted by the High Court, in a case involving allegations of crypto-related fraud - Ion Science Ltd -v- Persons Unknown (unreported, 28 January 2022) meaning that cryptoassets are now capable of being traced and enforced against in the same way as other more traditional classes of assets. This decision follows a series of rulings from the Courts of England & Wales regarding cryptoasset status, which has evolved in the eyes of the law in recent years.
As chancellor of the High Court, Sir Geoffrey Vos, stated in November 2019 when launching the LawTech Delivery Panel’s statement on Cryptoassets and Smart Contracts, “…there is no point in introducing regulations until you properly understand the legal status of the asset class that you are regulating”. It was also stated that litigation involving cryptoassets is rising significantly but that the cases are proving increasingly complex because of the difficulty of applying non-digital rules to the digital environment.
We have since been provided with even more clarity on that legal status, for example in the case of AA -v- Persons Unknown [2019] EWHC 3556 (Comm), which established that Bitcoin is property capable of being the subject of a freezing order.
As time goes by, cryptoassets are becoming increasingly popular, significant and, indeed, recognised in the English Courts, which is apparent not only from the increasing number of cases that further define ‘crypto’. Regulation over this ‘new’ class of assets remains limited, however, and sooner or later more stringent governance may well need to be introduced in order to protect consumers against serious wrongdoing and misconduct.
For more information on this topic please contact Qasim Khan-Cheema.
