Retail investors who held units of funds operated by failed alternative investment fund manager, Bridging Finance Inc., are in line to share $473 million in a distribution being proposed by the firm’s receiver, PricewaterhouseCoopers Inc. (PwC).
On Dec. 9, the receiver will ask the Ontario Superior Court of Justice to approve an initial distribution, which would represent the first money that the firm’s 26,000 retail investors have seen since the firm was placed into receivership in April 2021.
In 2022, the court approved a $46 million payout to institutional investors, and another $40 million has been spent on legal fees and other expenses of the receivership.
According to court filings, PwC has so far recovered $698 million of the funds’ assets (as of Oct. 28), and it’s now proposing to payout $473 million of that total to investors in what would represent an interim distribution.
It’s expected that more money will be returned to investors, eventually.
However, unresolved claims on the funds’ assets remain, that must be dealt with before a final distribution can be made — amounting to about $296 million. There are also outstanding loans that have yet to be collected, and ongoing litigation by the receiver that could increase the pool of available assets.
When Bridging was put into receivership at the behest of the Ontario Securities Commission, its funds reportedly held assets worth $2 billion. However, the receiver has found that those valuations were overstated due to a combination of alleged mismanagement and misconduct, and it concluded that investors are facing losses of over $1 billion.
If the court approves the proposed interim distribution, investors will be getting back about 26% of their investments in the Bridging funds, the filings indicate. That includes the $46 million institutional investor payout. PwC has previously estimated that the final recovery by investors will amount to between 34% and 42% of their original investments.
As part of the hearing to consider the proposed distribution, the court will be asked to approve PwC’s proposed methodology for allocating the recovered assets to particular funds.
Specifically, it proposes to allocate assets to each fund based on its share of the loans that have been collected by the receiver, and to allocate the costs of the receivership to each fund based on the same approach.
So, if a particular fund receives 10% of the recovered assets, it would also be charged 10% of the costs of the receivership. Individual investors would then receive a pro-rated share of the distribution based on their holdings of each fund.
In its filings, PwC argued against “substantively consolidating” the recovered assets, rather than allocating assets to particular funds based on their shares of the loans that have been collected.
According to its filings, this approach would not be “fair and reasonable” under the circumstances, PwC argued — adding that it would effectively boost the assets available to unitholders of Bridging’s flagship income fund by $74 million, while reducing recoveries by investors in the other funds by $93 million.
Allocating assets this way would require an additional $19 million reserve for the disputed claims, reducing the total proposed recovery to $454 million, it noted.