HALIFAX — Two law firms have been selected to represent users of the insolvent QuadrigaCX exchange who are owed about $260 million, most of it in cryptocurrency.
Justice Michael Wood of the Nova Scotia Supreme Court issued a decision Tuesday saying he had appointed Miller Thomson of Toronto and Halifax-based Cox & Palmer as representative counsel.
As of last week, the firms represented 252 creditors — all of them QuadrigaCX users — with claims amounting to about $15 million.
The Vancouver-based exchange was shut down Jan. 28 following the sudden death in December of its CEO and sole director, 30-year-old Gerald Cotten of Fall River, N.S.
Court documents say $190 million in missing Bitcoins and other cryptocurrency is locked in offline digital wallets — but they remain beyond the reach of the company because Cotten was the only person who had the encrypted pass codes. Another $70 million in cash is owed to users, much of it tied up in bank drafts held by third-party payment processors.
In his decision Tuesday, Wood said Miller Thomson and Cox & Palmer have extensive experience with insolvency cases under the Companies' Creditors Arrangement Act (CCAA), and he noted that Miller Thomson has expertise when it comes to cryptocurrency.
The main goals for the representative counsel are to make the proceedings efficient and cost effective, while providing clear lines of communication with the users, Wood said.
He endorsed the team's communication strategy, which includes the use of social media and online discussion groups like Reddit to reach 115,000 affected users.
"The rationale is that users are already discussing the Quadriga issue in those places, and it is important to have accurate information available to them," Wood said.
The two law firms had previously proposed to cap their fees at $250,000 during this initial stage of the court proceedings.
Cotten's widow, Jennifer Robertson, has already committed $300,000 to the court process, which requires Quadriga to pay all of the legal fees. Robertson holds a controlling interest in the company, an arrangement spelled out in Cotten's will. She remains the sole secured creditor.
"This CCAA proceeding is unique in the sense that there is no operating business of any significant size in terms of physical assets, employees, third-party suppliers or secured creditors," Wood said in his decision.
"There is, however, a very large group of diverse users who have no access to many millions of dollars in assets" given to QuadrigaCX, he said.
Wood said the two law firms and the court-appointed monitor overseeing the case, Ernst & Young, will be asked to select users to join a committee that will help the monitor and the lawyers.
"The business is currently suspended, and may never resume, although that remains to be determined," the judge said. "The biggest task for the monitor will be to locate and recover the applicants’ assets."
Last week, three teams of lawyers submitted motions seeking status as representative counsel. There were more than a dozen lawyers in the courtroom at the time.
"The anecdotal evidence at the (Feb. 14) hearing is that many people are extremely upset, angry and concerned about dishonest and fraudulent activity," Wood said. "There are reports of death threats being made to people associated with (QuadrigaCX)."
A Feb. 5 court order granted QuadrigaCX protection from its creditors, but the stay of proceedings expires on March 5. The court is widely expected to grant the company an extension.
Michael MacDonald, The Canadian Press