Trustee of Collapsed Exchange Moves to Resolve Crypto vs. Fiat Creditor Claims Tussle

Ernst and Young (EY), the bankruptcy administrator of the defunct QuadrigaCX exchange, is trying to settle a dispute over how the company’s cryptocurrency assets should be valued prior to paying out to creditors.

EY will go to court on Jan. 26 to argue that the valuation date for cryptocurrency claims should be considered from the date of the exchange’s bankruptcy on April 15, 2019. The company takes a different stance than the affected user, crypto startup BlockCAT, which wants its digital assets to be valued starting February 5, 2019 when Quadriga received judicial protection for a reorganization under Canadian federal law.

The date used has a huge impact on how the cryptocurrency is valued and how much creditors will receive from the remaining pool of assets.

BlockCAT has made a claim of $ 4 million Canadian ($ 3.14 million). In order to maximize the payout, the company filed a motion stating the date for evaluating other users ‘cryptocurrency claims from the exchange’s original court order in relation to the Companies’ Creditors Arrangement Act (CCAA).

The problem at hand concerns the former users of Quadriga, who have predominantly cryptocurrency claims, against creditors who are predominantly fiat currency claims. In total, Quadriga users have filed 17,053 claims valued at either $ 224 million or $ 291 million, depending on the date used to value the assets.

The trustee must pay claims for cryptocurrency and US dollars in Canadian dollars, which means the court must set a valuation date before proceeding with the payout.

A factum (an explanation of the facts) was filed by EY on Tuesday with the Ontario Supreme Court in connection with its petition for an order to use the bankruptcy rate for conversions.

According to business attorney Evan Thomas, who evaluated the trustee’s numbers presented in the factum, a user entitled to CAD only will get 23% less back using the April 15, 2019 date.

As shown above, the price of cryptocurrencies typically increased between February 2019 and April 2019. As such, a former Quadriga user with a claim to Bitcoin only would get 14% more CAD if the April date is set as the legitimate date by the courts.

If BlockCAT convinced the court that cryptocurrency claims should be assessed by the February date, the relative proportion of the Quadriga pool payable to affected users with CAD claims would increase, noted Thomas.

The case in the novel in Canadian law. “So far, no bankruptcy court in Canada has been asked to determine when cryptocurrency claims should be valued in Canadian dollars,” the EY factum said.

QuadrigaCX, formerly Canada’s largest cryptocurrency exchange, went dark in January 2019 after banking issues, customer withdrawals, and the reported death of its founder and CEO Gerald Cotten in December 2018.