PricewaterhouseCoopers (PwC), formed in 1998 from a merger between Price Waterhouse and Coopers & Lybrand, has a history dating back to the nineteenth century. But today, they are firmly in the 21st century, publishing a crypto insolvency guide advising crypto business owners on what to do when things start going wrong.
The accounting firm’s Hong Kong branch released the article titled: “Crypto Insolvency. Ten things every director of a crypto firm needs to know when things start to go wrong”.
Assessing a company’s viability requires extra care when dealing in crypto assets, because of their volatility. The lack of clarity on tax and accounting within the law means that uncertainty is inevitable when attempting to evaluate the solvency status of a crypto company. They recommend seeking advice from legal and financial experts.
If a company’s financial standing is in trouble, director’s duties move from serving the best interests of their shareholders to those of their creditors. If a company goes into liquidation, creditors have priority for repayment before shareholders. The article lays out the possible loss of management control, civil penalties, and even criminal charges that a director could face if they fail to adequately manage insolvency proceedings.
Crypto Firms Often Operate in Multiple Jurisdictions, This Is Relevant In Insolvency Proceedings
PwC expressly mentions companies that operate in multiple jurisdictions, which is very common in the crypto arena. In an insolvency scenario, the Centre of Main Interest (COMI) becomes relevant when considering which jurisdiction’s laws take precedence.
Certain jurisdictions are viewed as being either ‘debtor friendly’ or ‘creditor friendly’. Typically, the U.S. is perceived to be debtor friendly due to its Chapter 11 reorganisation scheme in which a court will help a business restructure its debts and obligations. In most cases, the firm remains open and operating. In contrast, the United Kingdom and Hong Kong are viewed as being creditor friendly as directors typically lose their powers and a liquidator assumes operation and control of the company. Some offshore jurisdictions such as Bermuda and Cayman Islands offer something in between.
Their last point is about insurance. If you are a company director or officer you are able to buy an insurance product known as Directors & Officers Insurance Cover . This is insurance coverage intended to protect individuals from personal losses if they are sued as a result of serving as a director or an officer of a business or other type of organization. It does not cover fraudulent, criminal or noncompliant acts, nor does it cover a director if they act for personal profit.