regulated activities for a cryptoasset business without appropriate
In addition, insolvencies of Bermuda-regulated cryptoasset businesses
raise unique problems for Bermuda liquidators:
1. The lack of clarity on the accounting treatment and valuation of
digital assets makes evaluating the solvency or lack thereof of a
digital asset a complicated task.
2. Under the Bermuda Companies Act 1981, broad powers are afforded
to Bermuda liquidators when seeking to recover assets in the
liquidation of Bermuda companies, but the recoverability of digital
assets will be dependent on the ability to identify targets to seek
recourse against. Many digital assets are created and transferred
using anonymous blockchain technology meaning that, while the
BMA can identify the parties to a public digital asset transaction
from the party names given, those names might be aliases or false
altogether, making the process of ascertaining the identity of
transferors and transferees of digital assets difficult.
3. With DABA and ICO technology being decentralised, the global
and borderless nature that underpins the maintenance and transfer
of many digital assets can cause uncertainty when determining
how and where to enforce rights relating to digital assets held by
a company in liquidation. Bermuda liquidators have a traditional
toolbox to assist them in multi-jurisdictional insolvencies, which
might not be enough, including:
a) A Section 195 order, compelling any person connected to the
company to provide the liquidator with any books and papers
relating to the company.
b) A scheme of arrangement, between a company and its creditors
to restructure a company by varying the rights of the certain
c) A Norwich Pharmacal order, compelling a party to disclose
information in circumstances where one has knowledge of a
wrongdoing but not of the identity of the wrongdoer.
d) A Bankers Trust order, compelling a Bermuda bank to provide
discovery to enable tracing of funds believed to be owned by the
company and held by the bank.
Intangible asset valuation
Intangible assets are non-physical assets such as copyrights, patents,
trademarks, and goodwill, and are distinguished from physical assets.
According to a 2015 report of Ocean Tomo, an intellectual property
bank, 84 percent of the S&P 500’s value is derived from intangible
assets. This amounts to an inversion of balance sheet values for
tangible and intangible assets from 1975 when intangible assets were
valued at 17 percent.
This exponential increase in intellectual property value, led in part
by the technology boom, requires us to account for those intangible
assets in a more modern way. GAAP and IFRS accounting value
intangible assets differently—depending on whether those intangible
assets were acquired or grown internally—and under both accounting
systems intellectual property is valued less favourably than tangible
assets such as plant and machinery.
The result is corporate valuations for companies rich in intangible
assets that are lower than should otherwise be appropriate. This has
a knock-on effect on corporate borrowing costs, credit ratings and
corporate financial health as a whole.
These days that difference in accounting approach is outmoded.
Insurance and ILS might turn that problem into an opportunity by
finding a means to establish an insured value for those intangible
assets and provide an intangible asset credit guarantee for, say,
regulatory capital relief purposes.
With the loss creep of the 2017 and 2018 nat cat seasons it is to be
expected that third party capital investors would look for a different,
more stable and remunerative insurance class to collateralise.
Correspondingly, the insurance industry requires increased capacity
and ILS seems an obvious means of raising it.
It remains to be seen whether the pricing and low levels of data
and loss history for cyber justifies a large scale move to cyber away
from nat cat coverage, which itself still has very low penetration in
undeveloped and developing economies and is aggravated by climate
The irresistible rise of technology creates not just opportunities
but also challenges, especially in the areas of cyber, cryptoasset
enforcement and intangible asset valuation.
Whatever lies in store for cyber, technology, and ILS, Bermuda is an
established leading jurisdiction for fintech and insurtech and is well
positioned to continue its history of innovation and reinvention.
Peter Dunlop is a partner, insurance & reinsurance, at Walkers
Bermuda. He can be contacted at: email@example.com
“Insurance and ILS might turn that problem into an opportunity by finding a
means to establish an insured value for those intangible assets.”