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29. January 2019 | Bitcoins & Cryptocurrencies: Moving Abroad Enables Tax-Free Sale

25. August 2021 | New rules for the taxation of Bitcoins & Co. – BMF letter to create clarification

September 3, 2021 | Bitcoin GmbH – which legal form is the best for tax purposes?

17. December 2021 | Cryptocurrency and its taxation – so you can offset losses and earn income tax-free

10. January 2022 | Cryptocurrencies in Insolvency Proceedings – Determination of foreclosure (this contribution)

In accordance with § 1 sentence 1 InsO, the insolvency proceedings shall jointly satisfy the creditors of a debtor by realizing the debtor’s assets and distributing the proceeds or by making a different arrangement in an insolvency plan. Therefore, it is the task of the insolvency administrator to take possession and administration of the insolvency assets in accordance with § 148 (1) InsO and to use them. But then the question arises as to how to deal with cryptocurrencies in insolvency proceedings. There are certain problems. This is what the contribution is looking at.

As a result of the Corona crisis, there were more and more insolvency proceedings. The insolvency proceedings serve to satisfy the creditors of an insolvent debtor. The insolvency estate contains not only physical objects and claims of a classical nature. Rather, according to § 35 (1) InsO, the insolvency estate comprises the entire property. That is why there are now also crypto currencies in insolvency proceedings. The insolvency administrator must then identify and realise its asset. There are some problems with this.

In addition, claims of the debtor against third parties from cryptocurrencies may not be met. Then the insolvency administrator, if necessary after having obtained an enforcement order, must execute with the third party debtor. Here, too, the peculiarities of crypto currencies must be considered. Consequently, cryptocurrencies lead to problems not only in tax law but also in insolvency law. We clarify these as follows.

In the context of insolvency proceedings, it may be that the insolvency debtor has a claim to issue a crypto currency, but the third party does not issue it. Then it may happen that the insolvency administrator has to enforce with the third party. Of course, the peculiarities of crypto currencies must be considered. Cryptocurrencies denote a variety of different payment methods that work without a classic bank. There is cryptocurrency that does not have an issuer, such as Bitcoins. In this case, there is no central authority against which there is a claim.

Since Bitcoins are not physical objects, seizure by the bailiff is ruled out anyway. It therefore remains the attachment by attachment and transfer order. Therefore, the competent court is not the bailiff, but according to § 828 (1) ZPO the enforcement court. But since there is no issuer, a delivery to this is excluded. Consequently, according to § 857 paragraph 2 ZPO, the attachment is to be regarded as having been effected at the time at which the third party debtor is served with the offer to refrain from any disposition of the right.

For utility tokens or investment tokens, on the other hand, there is an issuer. The attachment is therefore effected by a attachment and transfer order. Here, however, unlike cryptocurrencies without issuers, with the issuer as a third-party debtor. Also in this case, according to § 828 (1) ZPO, the enforcement court is competent.

But also the insolvency debtor himself can own cryptocurrencies, which are then to be observed in the insolvency proceedings. In the context of the insolvency estate, a distinction is made according to § 35 InsO between the actual mass and the nominal mass. The actual mass is the assets that the insolvency administrator finds. The nominal mass, on the other hand, is the assets available to the creditors of the insolvency mass as a liability mass.

Accordingly, the question arises whether cryptocurrencies belong to the insolvency estate at all. First of all, they do not constitute personal rights or, in the context of individual enforcement, unattachable objects that are not subject to the insolvency estate. But also things that are necessary for the continuation of an employment, which consists in the provision of personal services, are excluded from the insolvency proceedings. However, cryptocurrencies are not subject to any of this group, as no personal services are provided with them. Therefore, cryptocurrencies in insolvency proceedings are attributable to the insolvency estate. Consequently, the insolvency administrator can exploit them and use them to satisfy creditors.

Somehow the cryptocurrencies have to be discovered in the insolvency proceedings but also. This is the job of the insolvency administrator. To identify these assets, he must first exhaust all sources of knowledge. The insolvency debtor is obliged to provide information and cooperation. Therefore, he must provide information about his assets that could be relevant for the insolvency proceedings. The obligation to provide information therefore only extends to the extent necessary for the identification and examination of potential mass objects. But this includes, for example, assets abroad and of course the crypto currencies. In addition, the insolvency debtor must also provide information about documents that the insolvency administrator needs to prepare the insolvency debtor's tax return. Crypto currencies are also subject to income tax, so that the insolvency administrator according to § 155 InsO in conjunction with §§ 34, 69 AO is obliged to handle these tax matters of the insolvency debtor.

Also to ensure truthful information about cryptocurrencies in insolvency proceedings, the coercive measures of § 98 InsO apply, such as the affidavit insurance, the forced presentation or the threat of imprisonment. In the case of a federal insurance, the debtor has to insure the debtor the completeness and correctness of his statement on oath instead. State insurance shall be provided by order of the court. This requires the necessity of a complete and truthful statement by the debtor, but not the suspicion of a truthless statement.

3.2.2 Forced demonstration and detention

In accordance with § 98 (2) InsO, the court may bring the insolvency debtor before force and, if ordered, detain him. For this purpose, the debtor must have refused a federal insurance or refrained from participating, or wish to evade his obligations to provide information or cooperate by preparing for an escape from fulfillment. However, the period of detention may not exceed a period of six months. The issuance of the arrest warrant may be contested with immediate appeal.

Before cryptocurrencies can be included in the total mass, they must first be exploited. This is done by selling them. Cryptocurrencies are sold on special online platforms or, for example, the Bitcoin exchange. With Bitcoin exchanges, the Bitcoins are sold directly to the provider of the exchange. This requires a user account. Subsequently, the sales price is transferred. This can usually be done in the short term and takes place quickly. The insolvency administrator only has to set up an account on the Bitcoin exchange.

On other exchange marketplaces, however, the sale takes place among registered users and not to the providers of the exchange. There is usually a longer period between offer and payment. Therefore, the price can fluctuate greatly. In addition, the insolvency administrator cannot independently demand the payment of the amount from the buyer, but requires the assistance of the insolvency debtor. This must first provide the insolvency administrator with access to his wallet. Then a sales offer can be created and selected between different purchase offers. Thus, the insolvency administrator can choose the most economically advantageous offer. However, such a procedure is longer.

In addition, there is also the possibility of a hands-free sale. The access data to the wallets are transmitted for a fee. This does not require registration and there are no transaction fees.

The problem with crypto currencies in insolvency proceedings is the fluctuating prices. Despite fluctuating courses, the insolvency administrator is obliged to a quick liquidation in accordance with § 159 InsO. In contrast, according to § 1 sentence 1 InsO, he should achieve the best possible creditor satisfaction. Accordingly, the insolvency administrator must find the best possible time to sell. Consequently, the insolvency administrator should also wait to see whether a falling price settles again. The insolvency administrator therefore has a difficult task.

Cryptocurrencies in insolvency proceedings turn out to be problematic, especially in the context of the investigation. In doing so, the insolvency debtor must above all fulfil his duty to cooperate. Similarly, the fact that the investigative procedure is carried out quickly and the creditors are satisfied in the best possible way creates problems. In the case of recovery, a distinction must be made between the individual sales platforms. The individual sales platforms have both advantages and disadvantages.