QuadrigaCX is safe from its creditors for the next couple of months after a Nova Scotia judge on Thursday extended creditor protection for the failed cryptocurrency exchange to June 28.
That's also the default day proceedings under the Companies' Creditors Arrangement Act will expire, making Quadriga a simple bankruptcy under the Bankruptcy and Insolvency Act.
Bankruptcy proceedings are already underway, with the accountancy firm Ernst and Young acting as trustee.
George Kinsman of Ernst and Young declined to give an update on asset recovery efforts following Thursday's hearing in Halifax before Nova Scotia Supreme Court Justice Michael Wood.
Approximately 115,000 former Quadriga clients are owed about $250 million after the company abruptly ceased operations Jan. 28., following the December death of founder Gerry Cotton from Crohn's disease complications while visiting India.
Fighting over crumbs
Cotten's widow, Jennifer Robertson, has told the court that approximately $180 million in cryptocurrency is locked up in Cotten's encrypted computers and USB keys. She said Cotten died without sharing the passcodes to release the funds.
So far, Ernst and Young has been unable to access Cotten's devices in its role as court-appointed monitor. A blockchain analysis commissioned by the firm found the "cold wallets" that were supposed to contain the missing cryptocoins have been empty and untouched since April 2018.
While Quadriga's clients and creditors wait to see how much they'll recover, lawyers for the various parties are fighting over the crumbs.
In court Thursday, a lawyer for a third-party payment processor holding $281,000 of Quadriga funds argued with the monitor about how much legal fees the company would be able to "hold back" under its agreement with Quadriga.
The lawyer for the payment processor, POS, noted his request for $23,000 in legal fees was "insignificant" in a matter where legal fees are being measured "in the hundreds of thousands of dollars."
As the primary beneficiary of Cotten's will, Robertson owns roughly $7.5 million of Nova Scotia real estate, both directly and through holding companies and a trust.
In a report issued on April 4, the monitor reported "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 may have been used to acquire assets held outside the corporate entity."
As a result, those properties and most of Robertson's other assets are frozen by an asset preservation order, and will be scrutinized under Quadriga's bankruptcy process as it moves forward.
Thursday's hearing was the last time the Quadriga matter will be heard by Wood, as he has been appointed chief justice of the Nova Scotia Court of Appeal.
Wood said he's "disappointed he won't see it through to the end," saying there is "an end in sight" for the Quadriga and its creditors, but not before a great deal of work from everyone involved.
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