In order to determine whether the various types of digital debt securities can be created and transferred, a number of legal issues have to be considered.
- Stapling: the purpose of stapling is to ensure that rights in respect of the token inherently form part of the token such that token holders obtain indefeasible rights upon issuance and on subsequent transfer of the token.
- Creation and issuance: the importance of ensuring that a digital security is validly constituted or issued is two-fold. First, the holder of the digital securities will need to ensure that it has direct rights as against the issuer. From the perspective of the issuer, it will need to make sure that its debt or other obligations in respect of the digital securities are fully discharged on payment to the holder of the digital securities.
- Negotiability: as negotiable instruments, conventional bearer bonds, can be transferred by physical delivery without the need for a separate written document of transfer or notice to the issuer. Transferees also take the bonds free of any defects in the title of the transferor or of prior transferors, provided that such transfer is consistent with the intention of the transferor and provided that the transferee has taken the instrument in good faith for value and without notice of any previous defect in title. The question then becomes whether bearer tokens likewise have negotiable status.
- Formalities: given the importance of deeds poll and trust deeds to constitute and transfer digital debt securities, we consider the formalities for executing the relevant contractual documents in respect of issuing and transferring digital debt securities under private law.
- Local corporate law requirements: a company incorporated in either Singapore or Hong Kong that wishes to issue digital bonds, irrespective of whether the digital security is governed by the Singapore law or Hong Kong law or another choice of law, will need to be mindful of the local corporate law requirements under the Companies Act or the Companies Ordinance respectively.