Justice Wood has appointed legal counsel to represent some 115,000 creditors in incipient legal proceedings against seemingly insolvent cryptocurrency exchange QuadrigaCX, documents published today, February 19, 2019, from the Halifax, Nova Scotia court reveal.
After postponing his decision, in a hearing on February 14, 2019, to choose one of four legal teams vying to represent affected users, Wood has given the bid to Miller Thompson and Cox & Palmer, a joint-counsel of two firms that collectively have logged “extensive insolvency experience.” Included with this experience, the firms have a useful understanding of the Canadian Creditors Arrangement Act (CCAA), a law that applies to insolvency cases of $5 million CAD or more. Wood was also impressed with the complementary expertise the two firms represent and the synergy they employed to exploit their expertise efficiently on behalf of their clients.
“Miller Thompson has additional depth in certain areas, including larger CCAA proceedings and cryptocurrency …The relationship between the two firms has been thought out carefully with a view to minimizing costs. Cox & Palmer will deal with their areas of expertise, including local litigation practice and court appearances. Miller Thompson will provide expertise in dealing with large creditor groups and cryptocurrency technology,” the judge wrote in the court statement.
“They propose a limited initial mandate and a cap on counsel fees in recognition of the reality that it is the users who will ultimately be paying,” he continued.
Dividing labors and setting a cap of $250,000 for legal fees to cut costs for an already cash-strapped creditor base is prudent, Justice Wood points out, as is the co-op’s plan to set up an online communication medium for creditors.
In the initial hearing to designate counsel, the judge made note of the role online “chatrooms” for the dissemination of information regarding the situation (he’s referring most ostensibly to Reddit, which has become a fertile ground for discussion and speculation since the fiasco started unravelling).
Miller Thompson/Cox & Palmer have proposed a “reasonable” alternative, the judge claimed, while agreeing that “some presence in social media and online discussion groups is necessary in order to reach the user group members.” This counsel-sponsored medium would hopefully add clarity and legitimacy to Reddit’s unverified accounts.
The judge’s decision comes as the Canadian Bitcoin community is vexed with questions over where their money went after QuadrigaCX CEO Gerald Cotten allegedly died in India last December with the only knowledge of the exchange’s cold wallet keys.
Many theories have cycled through social media, including conspiracies that Cotten faked his death, scuttlebutt of the type that has made the judge wary of Reddit’s use as an avenue for information.
Still, even disregarding these theories, more questions loom over the debacle than answers, including Jennifer Robertson’s (Cotten’s widow) involvement in the company and activity after the CEO’s death and the exchange’s sources of liquidity, which apparently favored sending cash in the mail or redeeming it to customers in person rather than through bank deposits.
As creditor suits mounted following QuadrigaCX’s inability to honor withdrawals, QuadrigaCX filed for creditor protection, which was approved by the court on February 5, 2019. Per CCAA procedures, the court moved to consolidate creditor legal representation, something Justice Wood explicated in today’s court document.
“There are two primary rationales given for the appointment of representatives and representative counsel in CCAA proceedings. The first is to provide effective communication with stakeholders and ensure that their interests are brought to the attention of the Court and other CCAA participants. The second is to bring increased efficiency and cost effectiveness to the proceeding as a whole. This latter objective can be attained by streamlining notification to stakeholders through their representatives and eliminating the need for multiple counsel to be retained by individual stakeholders to represent their interests.”