- A U.S. judge has dismissed Banq’s Chapter 11 bankruptcy filing, citing it as a “bad faith” move to avoid litigation
- The dismissal was motivated by evidence that the filing was intended to shield Banq’s executives from an ongoing lawsuit with a creditor
- The judge ruled that Banq’s intention was not to reorganize but to delay legal action against the company and its executives
Banq, a crypto-focused neobank, has seen its bankruptcy case dismissed by a bankruptcy judge who concluded that the filing was a tactic to dodge a lawsuit. Banq and its chairman, Jon Jiles, are embroiled in a legal battle with a creditor, N9, which accuses Jiles of failing to fulfill his fiduciary duties. The court found that Banq’s bankruptcy plan was primarily designed to hinder N9’s lawsuit rather than address the company’s financial restructuring needs.
Ambitious Goals Turned to Bankruptcy Filing
Banq was founded in 2020 as a subsidiary of failed crypto custodian Prime Trust, aiming to leverage the growing demand for crypto-related banking services by offering solutions like payment processing and custodial services for cryptocurrencies. Despite its ambitious goals, the company soon found itself embroiled in legal disputes and financial troubles, resulting in N9 suing the company and Jiles, alleging that Jiles prioritized the interests of Prime Trust—where he was also a founder—over Banq.
In addition, Banq is pursuing its own litigation against Purcell, accusing him of transferring assets to a rival entity. However, the court saw these actions as an internal dispute between executives rather than a valid reason for bankruptcy.
Filing Was an Abuse of Process
Banq filed for Chapter 11 protection in June 2023, ostensibly as a way of restructuring, but Judge Natalie Cox ruled the case was an abuse of the bankruptcy process, stating that Banq had no operating revenue and its focus appeared to be on legal disputes rather than business recovery:
It is apparent from the totality of the circumstances that the debtor’s actual purpose in filing this case is not to successfully reorganize.
Judge Cox further noted that the bankruptcy was funded by a loan from Jiles’ own company, raising questions about its legitimacy. The ruling means that N9’s lawsuit will go ahead with Banq afforded no creditor protection.
