Crypto neobank Banq, which filed for Chapter 11 in a U.S. bankruptcy court in the district of Nevada, has had its application rejected.

The bank's bankruptcy application was called a "bad faith" tactic to “gain an advantage in pending litigation” and not to reorganize by Judge Natalie M. Cox, who presided over the case.

Judge Cox wrote in her ruling that this bankruptcy proceeding was a ploy to shield Banq and its founder, Jon Jiles, from an investor lawsuit launched by N9 – a major creditor in the company with a $3 million stake – which alleges Jiles failed to uphold his fiduciary duties by prioritizing Prime Trust's interests (where he was founder and managing member) over Banq’s.

"Jiles quickly showed that his loyalty belonged to Prime Trust, not Banq," the N9 lawsuit reads.

N9's lawsuit also alleges that Jiles, in his capacity as Banq's chair, failed to create a non-compete agreement with former Banq CEO Scott Purcell, instead only putting one in place between Purcell and Prime Trust. N9 claims in the lawsuit that Jiles leveraged his control over Banq to benefit Prime Trust, prioritizing its interests and leading to Banq's downfall.

Banq is suing Purcell after he allegedly shifted the company's focus from crypto payments to NFTs before transferring $17.5 million in assets and technology to a competitor he founded called Fortress NFT Group, which is a central part of its bankruptcy claims.

In her ruling, Judge Cox wrote that Banq's bankruptcy plan was not a legitimate business reorganization because the firm had no sources of revenue. Instead, the company's business operations "relate almost exclusively" to pursuing litigation against Purcell.

“It is apparent from the totality of the circumstances that Debtor’s actual purpose in filing this case is not to successfully reorganize,” Cox wrote, noting that Jiles had funded the bankruptcy proceedings with a $225,000 loan through his company NVF LLC.

The case, Cox wrote, was designed to obstruct the ability for N9 to go after Jiles for breach of fiduciary duty.

"In essence, this case appears to be filed as a litigation tactic to advance the self-interest of the Jiles parties," the filing reads.

Instead, Cox wrote, this case is a dispute between Banq, Purcell, and Jiles – not a bankruptcy.