A legal tussle over the assets of failed alternative fund manager Bridging Finance Inc. returns to court on Feb. 3, when the Ontario Superior Court of Justice will hear arguments on competing claims for those assets — pitting retail investors against a construction finance company that says it’s owed $213 million by the firm’s flagship Bridging Income Fund LP.
At the hearing, Bridging’s receiver, PricewaterhouseCoopers Inc. (PwC), will ask the court to approve a partial distribution of the assets that it has recovered so far to unitholders in the the firm’s funds.
At the same time, the court-appointed lawyers for retail investors will ask the court to impose a “constructive trust” on the assets of the funds, which would give fund investors a priority claim on the assets recovered by PwC.
According to new court filings, these motions are being opposed by CERIECO Canada Inc., a company that was formed in 2017 to participate in a high-rise construction project in Toronto through a $213-million contractor’s loan to the project’s owner, Mizrahi Commercial LP.
In its filings, CERIECO claims that it made that loan on the strength of an unconditional guarantee from the Bridging Income Fund (BIF). Ultimately, the project failed, and is now in receivership too — and CERIECO is seeking to enforce the alleged loan guarantee, arguing that it should get its money back before the proposed distribution to retail investors can take place.
In 2024, PwC rejected CERIECO’s claim (a decision that remains subject to appeal to a court-appointed claim officer).
In the meantime, in court filings, CERIECO sets out its arguments against the motions from PwC and the lawyers for retail investors.
Among other things, the company argues that if the court approves the motion for a constructive trust, it won’t be able to get any of its money back. And, if the court approves the proposed partial distribution, its claim would be reduced to just 22% of the total it’s seeking ($49.2 million).
The company also asserts that the fund’s limited partnership agreements requires that creditors must be paid back in full before unitholders are entitled to any of its assets.
At this point, retail investors in the Bridging funds — which have been frozen since the firm was placed in receivership back in 2021, at the request of the Ontario Securities Commission (OSC) — haven’t seen any of their money back.
The firm’s receiver, PwC, has estimated that its creditors will ultimately recover between 34% and 42% of their money — between $701 million and $880 million of the $2.1 billion that was supposed to be in the funds when the fund manager was put into receivership.
For now, PwC is seeking court approval to pay out $473 million to investors, with the expectation that there will be further distributions once the receiver has finished recovering assets and dealing with outstanding litigation.
Separately, a court in Quebec recently ruled that an investor’s proposed lawsuit against a brokerage firm over the sale of Bridging funds can go ahead, and doesn’t have to wait until the receivership and regulatory proceedings in Ontario are wrapped up. That court said that it will likely be many years before these proceedings are completed, and legal appeals are exhausted.