NEW ZEALAND Law and Practice Contributed by: Greg Ambler and Elizabeth Heaney, Tompkins Wake
7. Succession of Digital Assets 7.1 Legal Framework
Insolvency Regulation There are other various opportunities for a third-party creditor to establish a successful claim to recover assets held by the debtor in a trust. To limit these rights of recovery, it is preferable to transfer assets into a trust prior to there being any known obligations to creditors, or any developing risks. The Property Law Act 2007 (PLA) provides a mecha- nism for the court to set aside particular dispositions of property in the event such disposition compromises a creditor intentionally or is made while the debtor was (or would be, following the disposition) insolvent. The relevant rules are in subpart 6 of part 6 of the PLA (Sections 344–350). The subpart applies only to a dis- position of property that was made after 31 December 2007, and was made by a debtor who meets one or more of the following criteria at the time of the dis- position: • was insolvent when making the disposition or became insolvent as a result; • was engaged, or about to engage, in a business or transaction for which the debtor’s remaining assets were unreasonably small given the nature of that business or transaction; • intended, or believed, or reasonably should have believed that the debtor would incur debts beyond the debtor’s ability to pay; and • was made with intent to prejudice a creditor, or by way of gift, or without receiving reasonably equiva- lent value in exchange. The Insolvency Act 2006 empowers the Official Assignee to set aside voidable gifts, being: • gifts made within two years before an adjudication of bankruptcy; and • gifts made within five years before an adjudication of bankruptcy where the bankrupt was unable to pay their debts at the time. The test for insolvency under both the Insolvency Act and the PLA is an objective cashflow test – that is, can the debtor pay thier debts when they legally fall due.
New Zealand does not yet have a settled legal defini- tion of digital assets, but the term is generally under- stood to cover anything owned in a virtual or elec- tronic form rather than a physical one. Although judicial and statutory guidance remains lim- ited, recent case law has acknowledged that digital assets can be treated as property. In a recent deci- sion, the court observed that it is “obvious” digital assets should receive property law protection given their widespread role in modern life. New Zealand courts have also recognised digital assets as property in matrimonial matters, where the Family Court held that cryptocurrency qualified as relationship property and can be divided under the Property (Relationships) Act 1978. Crypto-assets in New Zealand are treated as property for tax purposes, and their tax treatment depends on how they are used, rather than what they are called. They are not subject to GST when bought or sold, although GST may apply if they are received as pay- ment for ordinary business activities. Crypto-assets are classified as excepted financial arrangements, so if they form part of a taxpayer’s trading stock, they When considering succession issues, will makers in New Zealand will be well-advised to take account of digital assets in their succession plans. These can include the following. • Business digital assets with monetary value – can include online selling accounts (TradeMe, eBay, Etsy), digital content, websites and hosting plat- forms, social media accounts, domain names, and cryptocurrencies such as Bitcoin or Ether. • Personal digital assets with monetary value – can include mobile apps, online dating or gaming accounts, online utility or subscription accounts, loyalty points. • Sentimental digital assets – can include include email and social media accounts, online photo and must be valued at cost at year end. 7.2 Planning Considerations
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