b'ASSET REALIZATIONS IN THE NEW WORLD low realizations and exposing professionals to claimsvigilant as to the potential presence of crypto-currency for improvident realizations. Insolvency professionalsand standard taking possession checklists should be should develop unique guidelines that provide themamended to reflect this potential asset.with significant latitude in selling crypto-currencies7. When the subject debtor is a digital currency exchange, if they are to maximize realizations, which should be reflected in any Court-approved sale processes. questions may arise surrounding ownership of the crypto-currency held by the exchange. Is it owned by 3. Crypto-currency is generally held in a digital walletthe exchange and thus subject to the security of its which is typically accessed through a public and privatesecured creditors, or is the exchange simply holding the key that acts as a password. Where the existence of acrypto-currency for the benefit of the holders of the wallet is known, the Court may compel a debtor orwallets (similar to a bank with respect to monies held a crypto-currency exchange to freeze assets. This canin accounts for account holders)? If the holders of the be complicated, however, by the need to provide thewallets are the actual owners of the crypto-currency, Court with appropriate identifiers for the crypto- do they have property claims to the crypto-currency, currency wallet since these may not be readily available.or, are they simply unsecured creditors with claims In addition, in many cases the Court may not be ablefor the value of the crypto-currency? If the latter, to act quickly enough to prevent crypto-currency fromquestions may arise in terms of the timing to value the being moved to a jurisdiction outside of its control.corresponding claims.From a practical perspective, where a debtor seeks to8 . The nature of crypto-currency, in particular in terms deprive an insolvent estate of crypto-currency, the riskof its anonymity, speed of transaction and the ease with of that debtor being held in contempt of a Court Orderwhich assets can cross into other jurisdictions, make it may not be sufficient to incentivise them to providean appealing choice for illegal enterprises6. Insolvency access to the wallet. While Court-Ordered penalties forpractitioners should be ever vigilant as to the parties contempt vary, the risk may pale in comparison to thethey are dealing with to ensure that the assets and the financial reward for the debtor.4 practitioners reputation are appropriately safeguarded.4. Where crypto-currency exchanges fail, insolvency 9. As crypto-currency is not a true currency, depositsproceedings offer an opportunity for a very dispersedare not covered by the Canada Deposit Insurance creditor group to organize themselves as a collectiveCorporation. Insurance coverage is available, however, and the use of creditors committees may be prudent.through endorsements to existing crime policies or A recent example of this is in the Quadriga CXmore tailored policies. In taking possession of crypto-CCAA Proceedings where an "Official Committeecurrency, insolvency practitioners should work with of Affected Users" was recognized by the Court toan experienced insurance broker to review existing represent the users of the debtor companys distributedcoverage and ensure that they are compliant with ledger technology who had personal accounts in theguidelines related to the handling of digital assets.form of both cash obligations and crypto-currencyCANNABIS(the "Affected Users"). Representative counsel was appointed by the Court for the Affected Users.5 With the legalization of cannabis in Canada and the entry of many new players, insolvency practitioners are watching the 5. Crypto-currency is supported by digital ledgercannabis industry closely. It is highly likely (as with any new technology (DLT). While the use of DLT suggests thatindustry) that newer producers or weaker players may suffer from reviewable transactions should be easily identifiable,liquidity shortfalls, have difficulty complying with regulatory this will often not be the case. This may be dueand compliance requirements or suffer from untested business to certain practices employed by crypto-currencyprocesses, and a lack of managerial and financial ability or exchanges that can muddy the transaction ledger. Forcapacity.7 March 1, 2019, marked the first recorded CCAA filing example, some crypto-currency exchanges periodicallyfor a cannabis producer in CanadaAscent Industries8and comingle their clients assets by keeping them in themore are expected to follow. Below are seven considerations when same wallet while transactions are being processed.realizing on cannabis assets in insolvency proceedings:Even in cases where all transactions are recorded by the1. Early contact and cooperation with Health Canada DLT, it may not be possible to determine the identity of the transacting parties. Although some jurisdictions(for producers) and provincial regulators (for retailers) appear to be moving towards more transparentwill be required in order to maintain and transfer disclosure requirements for crypto-currency exchanges,the existing licenses and inventory. The ability absent additional regulation of this industry, there willto transfer both federal and provincial licenses is continue to be many cases where there is a notable lackuntested giving rise to significant uncertainty around of information.the realizable value of the underlying business in insolvency proceedings. In the short-term it is likely 6. I n many situations, the lender and the insolvencythat more debtor-led restructurings will be undertaken practitioners may not immediately be aware of theto minimize challenges surrounding the transfer of presence of crypto-currency. In every insolvencylicenseswhich may often be the greatest assetproceeding, practitioners should be increasinglyof value.36 Rebuilding SuccessFall/Winter 2019'