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 “Fourth Report of the Monitor” 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 — Cotten having ostensibly been the sole person with access to the wallets’ corresponding keys.

With the reportedly inaccessible crypto accounting for the vast majority of the exchange’s 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 auditor’s fourth report as Monitor for the case, EY’s legal team argues that the ongoing restructuring process for QuadrigaCX under the Companies’ Creditors Arrangement Act (CCAA) should shift to an alternative process under the Bankruptcy and Insolvency Act (BIA). The authors propose:

“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.”

The benefits of shifting to proceedings under the BIA, the report argues, include the fact that bankruptcy “would allow for the potential sale of assets, including but not limited to Quadriga’s operating platform,” as well as streamlining administrative burdens and cutting procedural costs.

Moreover, the report argues that transitioning to BIA would provide EY with “enhanced investigative powers” 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 — as is currently required under CCAA — with the trustee prospectively providing reports directly to affected users during the bankruptcy.

EY’s report further explains its ongoing investigations into QuadrigaCX’s missing funds, with reference to several third-party payment processors currently holding fiat currencies on Quadriga’s behalf.

EY has also filed an Asset Preservation Order request — that would involve all assets held by the Cotten estate his spouse, and others — due to its concern that “the corporate and personal boundaries between Quadriga and its founder Gerald Cotten were not formally maintained.”

As previously reported, EY’s last report was published this March, revealing details of the auditor’s ongoing investigations into wallets and transactions associated with the exchange.