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Crypto Winter in the Caribbean

As a jurisdiction of choice for the crypto and virtual asset sector, the British Virgin Islands (BVI) is the home of a large number of funds, issuers, lenders, exchanges and other crypto asset-related businesses. As the temperature of the 2022 crypto winter plummeted, global attention shifted towards the jurisdiction with the collapse of Three Arrows Capital (3AC), precipitated by the Terra Luna cryptocurrency implosion and 3AC’s failure to meet margin calls.

Since liquidators were appointed over 3AC by the BVI Court on 27 June 2022, the jurisdiction has remained in sharp focus, both in the context of these ongoing and high-profile liquidation proceedings and as a result of the domino effect on other sector participants and the flashpoint of the FTX bankruptcy in November 2022.

This article will provide a brief overview of the BVI insolvency framework and some of the key considerations and themes arising in the context of crypto insolvencies.


Long before being known as a “crypto-friendly” jurisdiction, the BVI had a reputation as a “creditor-friendly” jurisdiction with a robust insolvency regime supportive of creditors and investors, tough on those who, whether recklessly or deliberately, act in a manner which is prejudicial to the interests of creditors and investors.

The legislative framework for the insolvent liquidation of a crypto company mirrors that of any other liquidation and is well established. The relevant local legislation – the Insolvency Act 2003 (as amended) (“the Act”) – is modelled on the English Insolvency Act 1986. In an insolvency context, liquidators can be appointed over a company incorporated in the BVI by either a court application or (as recently in the instance of the liquidation of Globix) by a qualifying resolution of shareholders. A court application may be made by the company, a creditor or (where leave is granted by the Court and where there is a prima facie case that the company is insolvent) a shareholder, as well as by certain regulatory or prosecutorial authorities. The Court may appoint liquidators over a company where a company is insolvent – meaning either that the value of the company’s liabilities exceeds its assets (“balance sheet” insolvency) or that the company is unable to pay its debts as they fall due (“cash flow” insolvency). Liquidators may also be appointed by the Court in circumstances where it is either just and equitable or in the public interest for such appointment to be made.

A liquidator is an officer of the court (whether appointed by a shareholders’ resolution when insolvent or by the court) and must be a licensed BVI insolvency practitioner. In some contexts, a joint appointment with a foreign insolvency practitioner is authorised. Once appointed, a liquidator takes custody and control of the assets of the company and has conduct of the liquidation, gathering and preserving assets, adjudicating claims and making distributions to creditors in accordance with the statutory “waterfall” of priorities. Whilst the liquidator will have a broad range of rights and powers on appointment, they are bound to report to the creditors’ committee and are subject to the ongoing supervisory jurisdiction of the court (from whom the liquidator will often seek directions on significant issues).

Considerations and Themes

The scale and complexity of recent crypto liquidations is not anomalous for the BVI. As a major financial centre and favoured holding company jurisdiction, the BVI has been the focal point for numerous highly technical cross-border insolvencies and many aspects of the administration of those liquidations, including applying commercial principles, dealing with distressed assets and working closely with potentially competing stakeholder groups, have equal application in the management of a crypto liquidation. However, the events of the last 12 months have spotlighted some of the more specific challenges that arise in a crypto insolvency context. The lightening-speed of events leading up to a company being placed into liquidation and competing filings by companies and/or creditors in multiple jurisdictions appear to be a common dynamics of such cases, and while not specific to the BVI, many of the more novel challenges are first being navigated and highlighted to the broader market in the context of BVI insolvency proceedings. Crypto insolvencies and associated litigation have raised a number of specific legal issues for the BVI Court’s consideration. Examples include the following.

  • The characterisation and ownership of digital assets for the purposes of the insolvency regime: this question was first considered by the BVI Commercial Court in Philip Smith and Jason Kardachi (in their capacity as joint liquidators) v Torque Group Holdings Limited, where it was held (in line with decisions of the courts of England and Wales and other Commonwealth jurisdictions and by reference to the guidance of the UK Jurisdiction Taskforce) that crypto assets should be treated as “assets or property” for the purposes of the Act. The Court went on to consider which assets could properly be considered as assets of the company for the purposes of the liquidation, recognising that the test for ownership came down to who had knowledge of the private key.
  • In ChainSwap Limited v Persons Unknown, and again following similar decisions from England and Wales, the BVI Court granted its first freezing injunction over assets held by unidentified persons in relation to crypto fraud. In view of the “unknown” nature of the respondents, the Court also granted orders allowing ChainSwap to serve them outside of the BVI by alternate methods.
  • In Russell Crumpler and Christopher Farmer as Joint Liquidators of Three Arrows Capital Ltd (in liquidation) v (1) Zhu Su (2) Kyle Davies, the BVI Court has recently granted what is thought to be its first extra-territorial order summoning the directors of a BVI company to appear for private examination by the joint liquidators, pursuant to an application under Section 284 of the Act.

The case law to date, whilst limited, has demonstrated the pragmatic approach that the BVI Court continues to take towards the idiosyncratic challenges posed by the sector.

First published on Chambers and Partners

Mark Goodman

+1 284 340 6159

Sarah Thompson

+1 284 852 6160