Ernst and Young, the court-appointed monitor for the QuadrigaCX proceedings say the embattled Bitcoin exchange should abandon its current restructuring and opt instead for bankruptcy proceedings.
The “Big Four” consultancy firm believes such a move would be better for the exchange given the many difficulties being encountered regarding the recovery of missing funds. Meanwhile, revelations continue to emerge of poor business practices and the shady past history of high-ranking members of QuadrigaCX long before its problems became public.
QuadrigaCX Should File for Bankruptcy
In its fourth report published on Monday (April 1, 2019), Ernst and Young called for QuadrigaCX to move from restructuring to bankruptcy proceedings. According to the report, such a move would drastically reduce the cost burden on the troubled company, as well as facilitate the recovery of missing funds.
Reports indicate that the platform which was once the largest Bitcoin exchange in Canada owes its customers about $190 million in cryptocurrency and fiat deposits.
QuadrigaCX has been under a creditor protection order since February 2019, with the original order which expired on March 7, 2019, extended until April 23, 2019. Even with the extension, the court-appointed monitor says the possibility of being able to recover missing funds is remote at best.
An excerpt from the report advocating for bankruptcy proceedings reads:
“Given 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 Applicants’ stakeholders can be efficiently administered in a proceeding under the BIA.”
According to Ernst and Young, switching to bankruptcy proceedings will also increase the transparency of the process as the nominated trustee would have more powers to conduct thorough investigations and place company for sale to pay off for Quadriga’s creditors.
It remains to be seen whether the Nova Scotia Supreme Court will go with the recommendation of the court monitor. If Quadriga declares bankruptcy, then it will join the list of failed cryptocurrency exchange like Mt. Gox to suffer such a fate. Also, the start of bankruptcy proceedings will signal the end of Ernst and Young’s involved as a court monitor with the company being discharged from its duties.
Poor Business Practices
Meanwhile, the report also revealed new findings that show several instances of poor business practices by Cotten before his demise. According to the latest report, the late Quadriga founder regularly used business funds for personal expenses.
The investigation into the matter even shows that wallets owned by the company were empty in the months leading up to Cotten’s death. Ernst and Young allege that Cotten might have misappropriated Quadriga funds to acquire assets.
Thus, the court-appointed monitor is asking the court to freeze all assets currently held by the Cotten estate as well as those held by his widow, Jennifer Robertson. As previously reported by Blockonomi, Robertson had asked the court for a refund on the money spent by the family while filing for customer protection.
On the account recovery front, Ernst and Young report that little progress has been made. According to its reports, third-party payment processors have so far refused to cooperate with the effort to locate Quadriga funds domiciled in their accounts.
According to the report, Quadriga has about $6.3 million held up with payment processors as well as unclaimed bank drafts. With Cotten handling much of the business on his personal laptop, his demise has made tracing Quadriga funds a difficult task.