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Ernst & Young has argued that the now-shuttered Canadian crypto exchange QuadrigaCX should be placed in bankruptcy rather than undergo restructuring.
Big Four audit firm Ernst & Young (EY) has argued that the now-shuttered Canadian crypto exchange QuadrigaCX should be placed in bankruptcy instead of being restructured as part of ongoing creditor protection proceedings. EY proposed the course of action in its âFourth Report of the Monitorâ filed with the Supreme Court of Nova Scotia on April 1.
As previously reported, QuadrigaCX reported it had lost access to its cold wallet holdings following the death of its founder, Gerald Cotten, in December 2018 â Cotten having ostensibly been the sole person with access to the walletsâ corresponding keys.
With the reportedly inaccessible crypto accounting for the vast majority of the exchangeâs assets, QuadrigaCX owes over $198.4 million to an estimated 115,000 users. QuadrigaCX filed for creditor protection in early February, appointing EY as a monitor to the proceedings.
In the auditorâs fourth report as Monitor for the case, EYâs legal team argues that the ongoing restructuring process for QuadrigaCX under the Companiesâ Creditors Arrangement Act (CCAA) should shift to an alternative process under the Bankruptcy and Insolvency Act (BIA). The authors propose:
âGiven the present circumstances, the possibility that Quadriga will restructure and emerge from CCAA protection appears remote. The ongoing investigation to locate and recover assets for distribution to creditors with the intent of optimizing recoveries for the Applicantsâ stakeholders can be efficiently administered in a proceeding under the BIA.â
The benefits of shifting to proceedings under the BIA, the report argues, include the fact that bankruptcy âwould allow for the potential sale of assets, including but not limited to Quadrigaâs operating platform,â as well as streamlining administrative burdens and cutting procedural costs.
Moreover, the report argues that transitioning to BIA would provide EY with âenhanced investigative powersâ in its prospective role as trustee-in-bankruptcy for the exchange. The trustee, appointed for Quadriga CX and Quadriga Coin Exchange, would also ostensibly address governance issues by removing the need for a chief restructuring officer or directors.
BIA proceedings would remove the onus of formal updates to the court â as is currently required under CCAA â with the trustee prospectively providing reports directly to affected users during the bankruptcy.
EYâs report further explains its ongoing investigations into QuadrigaCXâs missing funds, with reference to several third-party payment processors currently holding fiat currencies on Quadrigaâs behalf.
EY has also filed an Asset Preservation Order request â that would involve all assets held by the Cotten estate his spouse, and others â due to its concern that âthe corporate and personal boundaries between Quadriga and its founder Gerald Cotten were not formally maintained.â
As previously reported, EYâs last report was published this March, revealing details of the auditorâs ongoing investigations into wallets and transactions associated with the exchange.
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