With a constant increase in popularity and a value which can exceed $20 000 per coin, many have taken the opportunity to find their riches in the mining and trading of cryptocurrency. While a large amount have found great success in this field, some are not as fortunate and may have fallen victim to those with nefarious intentions who have taken advantage of the concept of cryptocurrency to create pyramid schemes destined for disaster. As a result of the inevitable collapse of these schemes and many finding themselves in financial distress, it is vital to establish whether or not cryptocurrency falls within the definition of “property” in the context of the Insolvency Act 24 of 1936.
In the matter of Bester NO and others v Mirror Trading International (Pty) Ltd (in liquidation) t/a MTI and others [2023] 3 All SA 101 (WCC), amongst many other issues, Acting Justice de Wet was tasked with determining whether the Bitcoin of MTI fell within the definition of property in the context of the Insolvency Act.
Follow the money
Like so many cryptocurrency businesses today, MTI promoted itself as a multi-level cryptocurrency club and in addition to receiving a share of trading profits, members of the club also received a variety of incentive-based remunerations, based on the referral of new members who also joined MTI and made an investment. One of the issues raised by the respondent was that all payments to MTI were by way of transfer of cryptocurrency, more particularly Bitcoin, and as Bitcoin is not regulated by South African law it does not amount to movable property in terms of the Insolvency Act.
As defined in section 2 of the Insolvency Act, property is: “movable or immovable property wherever situate within the Republic, and includes contingent interests in property other than the contingent interests of a fidei commissary heir or legatee.”
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It is well recognized that the definition of property, as stated in the Insolvency Act, is much wider than under the common law and as established in Land- en Landboubank van Suid- Afrika v Joubert, NO 1982 (3) SA 643 (C), money falls within the definition of movable property and is included in a debtor’s insolvent estate. In MTI, the Court determined that from the available information it appeared that, in general, cryptocurrency possesses the following characteristics: it is a thing, incorporeal, intangible, fungible, divisible and movable. The Court was referred to various foreign judgments from the United Kingdom and New Zealand in which it was established that cryptocurrencies were “property” and could be referred to as “digital assets”.
Illogical
Ultimately, the Court found the respondent’s contention that cryptocurrency is not movable property as ‘illogical’ and such an idea would lead to the absurd result that an insolvent with cryptocurrency will be untouchable under the Insolvency Act. The Court further found that Bitcoin, and any other cryptocurrency for that matter, is movable property for purposes of the Insolvency Act and the transfer or disposition thereof should be dealt with in terms of the Insolvency Act. The Court’s finding in MTI should come as a huge relief especially to creditors and liquidator’s tasked with assisting to clean up the devastation left behind.
What has yet to be determined, is whether other ‘digital assets’ such as NFT’s (Non-fungible Tokens) could be ascribed the same or similar characteristics as those ascribed by the Court in MTI to cryptocurrency and therefore whether NFT’s are in property as defined in the Insolvency Act.
Nafeesa Noor Mahomed is a Associate (Litigation) at Fluxmans Attorneys
