Ernst and Young (EY), the court-appointed monitor for collapsed Canadian crypto exchange QuadrigaCX, has proposed transitioning the company from a restructuring process to bankruptcy proceedings.

In a new report posted Tuesday, EY said that the exchange’s creditors “will benefit” from converting its current restructuring process under the Companies’ Creditors Arrangement Act (CCAA) to a new one under the Bankruptcy and Insolvency Act (BIA).

“Transitioning from the CCAA to the BIA will streamline the administration of the proceedings, reduce the level of professional involvement and provide enhanced investigative powers for the Trustee,” the company said, adding:

“As set out in previous reports of the Monitor, the current objective of these CCAA proceedings is data and asset recovery. Given the present circumstances, the possibility that Quadriga will restructure and emerge from CCAA protection appears remote.”

EY’s work to recover Quadriga’s missing or frozen $190 million in crypto can still occur under the BIA. The exchange first reported at the end of January that it was unable to locate some $136 million in crypto and needed assistance pulling another $53 million from third-party payment processors.

There are a number of benefits to moving for bankruptcy, EY said, including allowing Quadriga to sell any valuable assets, reducing governance issues by removing the need for a chief restructuring officer or directors, allowing representative counsel to continue to participate and giving the exchange’s trustee “additional investigatory powers” without requiring court orders.

Bankruptcy is also likely to be cost-effective, EY says, though it explained that one of the cost reductions would come from no longer having to update the court on the exchange’s efforts to recover funds.

“It would remain available to the Trustee to provide reports to Affected Users during the bankruptcy,” the report says.

Wrapping up

In its report, EY indicated that its research into Quadriga’s missing funds might be nearing an end. It plans to file a final report in the next few weeks, which would update the court on what progress it has made, though Tuesday’s filing did not provide any clarity on the exchange’s missing cryptos.

In a previous report, EY said that the cold wallets Quadriga used to store bitcoin were empty (aside from some bitcoin accidentally transferred to one set of addresses), and that the exchange was unsure where the missing bitcoin could be.

Tuesday’s report did discuss a number of third-party payment processors holding fiat currencies on Quadriga’s behalf. Some, including VoPay, have confirmed that they are holding funds but may require court orders to return them.

Others, like WebBank 21, which recently rebranded to Black Banx, have not responded to EY, according to the report. Black Banx is holding roughly $9 million CAD ($6.7 million USD) that belongs to Quadriga.

Perhaps more notably, one payment processor which conducted business with Quadriga is operated by Jennifer Robertson, the widow of Quadriga founder Gerald Cotten. However, the firm, Robertson Nova Consulting Inc., claims to not be holding any funds on the exchange’s behalf.

“Counsel for Ms. Robertson also indicated that Ms. Robertson would work to obtain final statements from the financial institutions that held accounts for RNCI and would provide them to the Monitor once available,” EY said.

Asset preservation

The report also added that it was filing an Asset Preservation Order, “which involves all assets held by the Cotten Estate, Ms. Roberston, the Seaglass Trust, Robertson Nova Consulting Inc., and Robertson Nova Property Management Inc. due to concerns that corporate and personal boundaries between Quadriga and Cotten were not maintained.

“Quadriga funds may have been used to acquire assets held outside the corporate entity,” EY wrote.

If approved, the order would prevent Robertson or any of the companies named from selling or otherwise conducting any business with assets, EY wrote.

Prior to discussions with Robertson and her counsel, EY had been filing for a mareva injunction, which would have frozen her assets pursuant to a court order regardless. Using the asset preservation order instead allows EY to continue to investigate Quadriga, and sell any assets that are recoverable for the exchange’s creditors.

Nova Scotia Supreme Court image by Nikhilesh De for CoinDesk