Crypto Exchange Bankruptcies and DeFi Lending: An English Law Response to the Question of Avoidable Preferences

In an article authored for Global Restructuring Review, Howard Morris and Kyle Howard examine whether and in what circumstances cryptoasset withdrawals from a distressed exchange might amount to avoidable preferences under English insolvency law.

“The past year has seen the collapse of several high-profile crypto exchanges and platforms. There are some noticeable common factors as these companies have approached insolvency: debilitating levels of customer withdrawals akin to a “run on the bank”, insiders pulling out millions of dollars’ worth of their own cryptoassets, and the repayment of decentralised finance (DeFi) loans to free up cryptoasset collateral.”

The article considers the English law approach to various questions including: Are cryptoassets property? Who owns the cryptoassets held in an exchange? Can a transaction involving a cryptoasset be challenged as a preference? and What other claims and clawback measures might be applicable?

Read the full article.