A Canadian judge has granted troubled exchange QuadrigaCX a bit more breathing room as it searches for nearly $140 million in missing cryptocurrencies.

Judge Michael Wood, of the Nova Scotia Supreme Court, said he was satisfied that a stay of proceedings first granted a month ago should be extended by just under 45 days, with the next hearing scheduled for April 18. Creditors cannot sue the exchange until the stay expires or is lifted.

Appearing in court Tuesday, attorneys for Quadriga explained that the company was making progress.

“We owe it to everyone in the process to go on as long as is reasonable,” said Maurice Chiasson of Canadian law firm Stewart McKelvey. Chiasson has been representing Quadriga since the company filed for creditor protection at the end of January.

Elizabeth Pillon of Stikeman Elliott, representing Quadriga’s court-appointed monitor Ernst & Young (EY), added that the companies are currently in the “data recovery, asset recovery” phase, and needed some “breathing room” to continue their efforts.

Wood also approved the appointment of a chief restructuring officer (CRO), an individual who would manage the exchange and related companies while working with EY in recovering the funds that Quadriga owes customers.

Chiasson explained that Jennifer Robertson, the widow of Quadriga founder and CEO Gerald Cotten, did not have much experience running a cryptocurrency-focused company, did not want the notoriety that her position has brought her and may also have a conflict of interest as the executor of Cotten’s estate.

Chiasson told the court:

“There needs to be a bit of separation here.”

Wood expressed some concerns about the potential cost to creditors, particularly if the CRO duplicated work that EY already conducted.

However, EY, Quadriga and the judge came to a compromise, where the CRO would only conduct work at the direction of EY, preventing any such duplication and keeping costs low.

Further, the CRO to be appointed – Peter Wedlake, a senior vice president at Grant Thornton – will bill at an hourly rate, rather than charge a much higher monthly fee.

Other orders

Wood granted an order compelling Amazon Web Services, which reportedly has Quadriga platform data in an account created by Cotten, to turn over any such data.

During the hearing, an attorney for EY explained that Amazon was not opposed to doing so, but could not do so without the court order as Cotten did create a personal account, rather than a business one.

The judge also hopes to speak with payment processors which have yet to turn over any funds belonging to Quadriga to either the exchange or EY. While he said some firms may have to appear in court in-person, for the moment he said speaking to representatives of each processor via telephone would be acceptable.

He deferred any order on repaying Robertson the $300,000 CAD ($225,000 USD) that she initially paid into the CCAA process.

Separately, attorneys with Miller Thomson and Cox & Palmer, the court-appointed representative counsel, updated Wood on their efforts to organize the exchange’s creditors.

To date, 800 individuals have reached out directly to the law firms, said Gavin MacDonald, of Cox & Palmer. Of these, 58 have expressed interest in becoming part of the steering committee, a group of creditors who would effectively direct the representative counsel.

The law firms are in the process of interviewing the applicants and plan to have a committee selected by the end of next week. Should EY agree to the members, Wood said he would approve the committee.

End of the line?

While Wood did approve the appointment of a CRO, he noted that the title is at best symbolic, and the officer’s mandate puts him into more of a manager-type role rather than a turnaround artist.

Other aspects of Quadriga’s case are also different from a typical company restructuring, he noted.

Chiasson mentioned the possibility that Quadriga would sell its trading platform a number of times, though this possibility is still in the distant future.

It may become necessary to change from a creditor protection proceeding under the CCAA, which Quadriga originally filed for, to something more akin to bankruptcy, Wood added, concluding:

“This isn’t so much a restructuring as it is a claims process and liquidation … it does look like an end process.”

Judge Michael Wood image via Nova Scotia Supreme Court



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