Is it possible to be declared insolvent if payment obligations in bitcoins are not fulfilled?

A company had been ordered in default to pay out ‘mining revenues’ totalling 0.591 bitcoin subject to a periodic penalty payment of €10,000. Because the company did not meet this obligation, the company’s creditor petitioned for its liquidation. Insolvency Law Lawyer Sander Schouten explains how the Amsterdam District Court came to its decision.

When will a debtor be declared insolvent?

Article 1 of the Bankruptcy Act stipulates that a debtor, who is in the situation that he has ceased to pay, either on his own petition or on the petition of one or more of his creditors, can be declared insolvent by a court order. For the purposes of this article, a creditor means anyone who has a claim on the debtor, which, in the event of non-payment, will give rise to recourse against the estate and which arises from a legal relationship existing at the time of the liquidation order.

Liquidation in the Netherlands: Claims subject to validation

The point is, therefore, whether it concerns a claim that is subject to validation in the event of a liquidation order. Claims subject to validation are receivables which are dealt with by the insolvency practitioner and share The portion of registered capital of a private or public limited company
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in the proceeds of the liquidation of the asset.

Any penalties incurred are not shared

Article 611(e) of the Bankruptcy Act stipulates that penalties incurred cannot lead to recourse against the insolvent estate. Therefore, penalties incurred cannot be included in the proceeds of the liquidation of assets The assets of a Dutch company reflect the value of all that the company possesses
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in the event of a liquidation. Therefore, according to the court, it is not possible to petition for a company’s liquidation on the basis of a penalty incurred.

What are bitcoins?

In this case, the creditor could in fact only petition for liquidation if a claim for payment in bitcoins were deemed to be subject to validation. To be able to answer this question, the court first had to investigate what bitcoins actually are. In the court’s understanding, a bitcoin consists of a unique, digitally encrypted series of numbers and letters that are stored on the hard drive of its owner’s computer. Bitcoins are ‘delivered’ by sending bitcoins from one wallet to another wallet. Bitcoins are therefore self-contained value files that are delivered directly to the payee by the payer in the event of payment.

Payment obligation in bitcoin, claim subject to validation?

According to the court, this means that a claim for payment in bitcoin can be regarded as a claim that is subject to validation. After it had drawn this conclusion, the court then arrived at the opinion that an obligation to pay in bitcoin should be regarded as a civil obligation to pay. The court then found that the debtor had failed to comply with this obligation. It therefore concluded that the petitioner for the liquidation had or at least summarily appeared to have a claim.

Plurality of creditors in liquidation orders

According to settled case law, the condition required for a liquidation order, i.e. having ceased to make payments, is fulfilled if the debtor has failed to pay two or more creditors. In this case, it had been established that the applicant had a claim for payment in bitcoin, but it had also been demonstrated that there were other creditors. For this reason, the court ruled that the necessary condition had been fulfilled and ordered the company’s liquidation, which was in fact on the basis of a payment obligation in bitcoin.