QuadrigaCX Court-Appointed Monitor Wants Crypto Exchange Placed In Bankruptcy


Collapsed crypto exchange QuadrigaCX should transition from its restructuring process and start bankruptcy proceedings, the Canadian exchange’s court-appointed monitor Ernst and Young (EY) has suggested.

EY pointed this out in its latest report released on Tuesday, saying that Quadriga creditors stand to benefit if the exchange’s current restructuring process under the Companies’ Creditors Arrangement Act (CCAA) was changed to proceedings to as laid out in the Bankruptcy and Insolvency Act (BIA).

Transitioning could benefit creditors

According to the monitor, transitioning proceedings from the current CCAA to a new under the BIA would simplify the administration of the case and cut professional involvement, and as a result, provide the Trustee with “enhanced investigative powers.”

In the fourth report, the monitor notes that the CCAA proceedings only target the recovery of the exchange’s data and assets. According to EY:

“Given the present circumstances, the possibility that Quadriga will restructure and emerge from CCAA protection appears remote.”

The transition will still allow for EY’s work to continue as it looks to recover over $190 million Quadriga allegedly could not access after the death of its founder. Of these amounts, about $136 million is in missing crypto and over $53 million in frozen funds held by third-party payment companies.

The exchange sought creditor protection in January, claiming that it could not access over $136 million worth of cryptocurrencies and another $53 million held at payment processors.

Per the EY report, undertaking bankruptcy proceedings holds several benefits for creditors, including allowing the exchange to sell some of its valuable assets.

It would also do away with the position of the chief restructuring officer or other such directors, reducing issues related to governance. In turn, this would allow the representative counsel to play his role and accord the trustee added “investigatory powers” that wouldn’t have to come from the court.

Importantly also, bankruptcy would be a lot more cost-effective, especially given that the trustee would no longer be bound to update the court on ongoing efforts aimed at recovering the missing funds.

Final report to be issued in the near future

The report also indicates that EY’s research efforts regarding the missing funds could end sooner than expected, with a final report most likely to be released within weeks.

In an earlier report, the audit firm had revealed that alleged cold wallets that were used to store the exchange’s bitcoin holdings were empty.

The latest information nonetheless provided an update on the issue of fiat funds held by payment processors. Some of these third-party platforms, like VoPay, confirmed that they do hold Quadriga funds. However, the release may only happen if there is a court order.

Black Banx (until recently called WebBank 21) reportedly holds around 9 million CAD (approx. $6.7 million) but is said to have failed to respond to EY queries.

It has also emerged that one of the payment processors that worked with Quadriga belongs to Cotten’s widow Jennifer Robertson. However, Robertson Nova Consulting Inc. has claimed that it does not hold any funds belonging to the collapsed exchange.

In its report, EY notes that Ms. Robertson has undertaken to avail final statements in relation to “financial institutions that held accounts for RNCI.”

The Monitor also indicates that it was in the process of filing an Asset Preservation Order that would likely prevent Robertson or related entities from selling any of the assets. The report notes that there are concerns that Quadriga and Cotten’s assets were mixed up.

And as such, the preservation order seeks to prevent Cotten’s Estate, his widow Ms. Roberston, Robertson Nova Consulting Inc., the Seaglass Trust, and Robertson Nova Property Management Inc. from disposing of assets that may have been acquired using the exchange’s funds.

Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.

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