Understanding Cross-Border Insolvencies

In a progressively integrated global economy, the notion of cross-border insolvency has gained paramount importance, especially with cryptocurrencies. With the increasing significance of digital assets, it is crucial for stakeholders—debtors, creditors, and legal practitioners—to comprehend their treatment in insolvency proceedings across various countries. This chapter analyses the intricacies of cross-border insolvency in relation to cryptocurrencies, scrutinising the legal frameworks, problems, and new trends that define this dynamic domain.

The Characteristics of Cross-Border Insolvency

Cross-border insolvency pertains to scenarios in which insolvent debtors possess assets or creditors across multiple nations. The intricacy is exacerbated by technology improvements that have altered business operations and asset types, rendering the insolvency process more intricate. The decentralised structure of cryptocurrency presents distinct jurisdictional issues. In contrast to conventional assets that are physically situated within a defined jurisdiction, cryptocurrencies operate on distributed ledger technology (DLT) and can be effortlessly transferred across borders.

The proliferation of cryptocurrencies has resulted in an increase in insolvencies within the sector, as demonstrated by notable cases like FTX and Celsius Network. These incidents highlight substantial regulatory issues that authorities must confront when enacting reforms to successfully handle crypto-related insolvencies. The absence of a uniform regulatory framework across jurisdictions complicates the handling of cryptocurrencies in bankruptcy proceedings and raises concerns over the recovery of digital assets transferred internationally.

Legal Frameworks Regulating Cross-Border Insolvency

The legal systems regulating cross-border insolvency differ markedly among jurisdictions. Certain nations have implemented standardised laws or accords to enhance judicial collaboration and streamline the insolvency procedures for multinational debtors. The UNCITRAL Model Law on Cross-Border Insolvency provides a framework for nations aiming to implement efficient cross-border insolvency systems. Nevertheless, not all governments have embraced this model law, resulting in inconsistencies in the management of insolvencies worldwide.[1]

In nations where the model law is enacted, courts may acknowledge international bankruptcy procedures and collaborate with foreign representatives to aid in asset recovery. This collaboration is essential in the realm of cryptocurrencies, given their decentralised nature, which allows assets to be kept across various jurisdictions concurrently. Nonetheless, even in states with established cross-border insolvency regimes, issues persist concerning the enforcement of judgements and the acknowledgement of foreign proceedings.

[1] “Cross-Border Insolvency and Technology: Emerging Trends and Challenges.” LinkedIn Article by Vapje V., January 2025 [Online]. Accessible at: https://www.linkedin.com/pulse/cross-border-insolvency-technology-emerging-trends-challenges-vapje accessed on 6 January, 2025.