BlockEx’s CVA raises important questions for the Cryptoasset industry, says Mackrell Turner Garrett

Posted on Thursday September 26, 2019

It was recently revealed that London-based start-up BlockEx has begun insolvency proceedings after it failed to raise the funds it hoped to achieve.

The company has instructed insolvency specialist Leonard Curtis to run a company voluntary arrangement (CVA), which will allow the start-up to reduce its liabilities and hopefully restructure itself so that it can continue to trade with new investment.

Amongst its creditors are former employees and HM Revenue & Customs, who are believed to be owed more than £3 million.

Despite initially raising £20 million through its initial coin offering last year its co-founder and Chief Executive, Adam Leonard said that only £5.5 million of the funding had been forthcoming as the crypto markets had hit uncertain times.

Its ICO, the Digital Asset Exchange Tokens (DAXT), has collapsed and is now almost worthless, which has raised concerns about the company’s future.

Reviewing the impact of BlockEx’s CVA, Thomas Hulme, a Cryptoasset and Blockchain specialist at Mackrell Turner Garrett said: “The collapse of the DAXT and BlockEx’s CVA will certainly have ruffled the feathers of investors, both of the company itself and those that have sunk money into projects via similar ICOs.

“The unregulated nature of cryptoassets is often what attracts many investors, but it is also the main element of risk, which means that funds are not protected against often tumultuous markets.

“The CVA used in this case will mean that many of the creditors of the company will either never see the money they are owed or will have to wait a long time to recover either the full amount or a small proportion of the money that is still outstanding.”

Thomas said that as this was such a new industry people are still unsure of where to turn when things go wrong, but said there were options on the table in some circumstances.

“Unlike mainstream investments that are protected by organisations, such as the Financial Conduct Authority and The Financial Services Compensation Scheme in the UK, cryptoassets often rely on contracts and agreements,” said Thomas.

“Should an investment fail then there may not be a simple compensation process and instead, for many, the only option may be to seek redress via the courts.

“Due to the rapidly changing value of these assets, it can be hard at times to apply damages that accurately reflect what has been lost and so it is important that investors seek specialist assistance from solicitors who understand the complexities of the cryptoasset market.”