The picture does not look bright at all for those who were hoping to re-enter the Canadian Exchange Quadriga CX. A report published on April 1, 2019, by Ernst & Young suggests that the only option for the Exchange is bankruptcy.The Exchange went into a downward spiral after its CEO, Geral Cotten, died, taking with him the secret to access the company’s cold wallet, which had roughly $143 million in cryptocurrencies.
After the courts granted the firm’s representatives a grace period to regularize the situation under the Companies’ Creditors Arrangement Act, a series of discoveries and scandals emerged, including the misuse of users’ funds, unreported expenses, loss of funds, and the theory that the Exchange did not actually have the money it claimed to have.
“During the course of the Monitor’s investigation into Quadriga’s business and affairs, the Monitor became aware of occurrences where the corporate and personal boundaries between Quadriga and its founder Gerald Cotten were not formally maintained, and it appeared to the Monitor that Quadriga funds might have been used to acquire assets held outside the corporate entity.
The Best Thing for Quadriga is What We All Feared
The report filed by Ernst & Young explains that the company’s assets are not sufficient to cover its obligations and since it is impossible to find the keys to the cold wallet, the best choice is to move from a CCAA to the application of the Bankruptcy and Insolvency Act [BIA].
“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. The ongoing investigation to locate and recover assets for distribution to creditors with the -8- intent of optimizing recoveries for the Applicants’ stakeholders can be efficiently administered in a proceeding under the BIA.”
Conforming to this law, the Exchange could sell its assets to pay its debts, allowing a quick solution to the problem taking into account the current situation. Likewise, this judgment would considerably reduce the legal costs associated with the procedures.Finally, the report Calls for the application of an Asset Preservation Order for Mr. Cotten’s estate.