Cryptocurrency and Bankruptcy Administration

The following article deals with a number of issues trustees face when dealing with cryptocurrency. AFSA has the following on-line resource Dealing with cryptocurrency in a bankrupt estate

Contributed by JT Johnson, Barrister, Frederick Jordan Chambers

More people are being persuaded to open and use crypto currency transactional accounts which raises issues for trustees trying to fulfil their role under section 19 of the Bankruptcy Act 1966, to take control of any such accounts and the underlying value.

Recently, Justice Derrington in the Federal Court of Australia in Australian Securities and Investments Commission v A One Multi Services Pty Ltd [2021] FCA 1297 considered the making of a freeze and disclosure order concerning crypto accounts. Unfortunately, the full reasons for the way in which the disclosure provisions were intended had not been articulated in the judgement.

From the trustee’s viewpoint of a regulated debtor’s estate, it illustrates the type of information and records that a trustee should request from a regulated debtor. Digital currency is property under section 5 of the Act and a trustee can take possession, to the extent possible of such property, and require information from a regulated debtor concerning that property (see s 77 (1) (ba), (e), (f) and (g)).

The information that can be requested from a regulated debtor is:

  1. all relevant credentials and passwords for access to any crypto currency held by the regulated debtor, including the public and private keys and/or seed string for any soft or cold wallet
  2. authentication devices required to facilitate access, operation or control of any crypto currency
  3. all relevant credentials and passwords for access to the authentication devices or systems, including email, SMS or mobile apps, that facilitate access, operation or control of crypto currency
  4. any cold wallet device containing crypto currency together with the access code.

Consideration should be given to include a request for such information in the ‘day one letter’ issued by the trustee and said at any face-to-face, audio-only or audio-visual interview with an appropriate record being kept.

There may be a tendency for people to conceal this type of data. If suspicions arise, the following actions could be taken:

(a) a s 130 search warrant

(b) via OR access obtained under s 77AA.

There would also need to be consideration of the matters outlined in s 19 (1) (j), (k) and (l) of the Act.

So far as access rights, electronic information would be a book as defined in s 5 (1) as:

“Books includes any account, deed, paper, writing or document and any record of information however compiled, recorded or stored, whether in writing, on microfilm, by electronic process or otherwise.”

Therefore, information kept on a mobile phone, tablet, laptop or any other form of electronic media would be considered a book.