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Investors in the funds of Bridging Finance Inc. are finally poised to get some money back, after a court approved a proposed distribution to the funds’ unitholders — albeit for less than the $491 million that the failed alternative fund manager’s receiver sought to pay out.

Following a hearing last month, Ontario’s Superior Court of Justice largely approved a motion from Bridging’s court-appointed receiver, PricewaterhouseCoopers Inc. (PwC), which sought the court’s permission to finally make a payout to the 26,000 retail investors, whose funds have effectively been frozen since the firm was placed into receivership back in 2021 at the behest of the Ontario Securities Commission.

At the time, the funds were supposed to have about $2 billion in assets under management, but PwC has estimated that it will end up recovering less than half of that total.

Late last year, PwC brought a motion seeking court approval for an interim distribution of approximately $473 million to investors — a total that was later revised up after some disputed claims against the funds were resolved. It’s expected that investors will get more money back once various other legal actions are resolved, and PwC has finished its work realizing the funds’ assets (as of Oct. 31, 2024, it had recovered $698 million).

In the meantime, court-appointed counsel for investors supported PwC’s request to make an interim distribution to investors. But it disagreed with the proposed calculation of the payout, and asked the court to impose a “constructive trust” over the funds’ assets, which would mean that the fund investors would receive money back before Bridging’s other creditors.

The motions from PwC and investors’ counsel were opposed by lawyers for Cerieco Canada Corp., which argued that it’s owed $213 million (plus interest and costs) from one of the Bridging funds, based on a loan guarantee that, it alleged, was provided by the fund back in 2017 in connection with a major real estate development project that failed.

That claim, which was initially rejected by PwC, remains in dispute.

Two other outstanding claims against the funds, including a $33-million claim from BlackRock, were also both rejected by PwC, but were subsequently settled. The BlackRock claim was resolved the night before the latest court hearing for $6.5 million.

Settling those claims boosted the proposed interim distribution to investors by $18 million to $491 million from PwC’s initial plan to payout $473 million. However, that proposal has been disrupted by the court’s ruling regarding the Cerieco claim.

According to the court’s decision, Cerieco argued that if PwC’s proposed distribution was approved, the most that it could recover under its claim against the funds would be slashed to about 22% of its total claim.

The court largely agreed, ruling that while it is appropriate to allow PwC to make a payout to retail investors — almost four years since the fund firm was placed into receivership — it would also be premature to approve the size of the distribution proposed by PwC, given the still-outstanding Cerieco claim.

“The whole point of this receivership proceeding is to realize on the assets of the Bridging funds for the benefit of unitholders,” it noted — provided that the interests of outstanding creditors are protected.

So, while it may ultimately turn out that the Cerieco claim isn’t upheld, the court said that it would be inappropriate to proceed on the assumption that the claim isn’t valid, given that the court-approved process for adjudicating creditor claims is still under way.

While this means that investors will have to wait longer to get money back, the court said, “… the prejudice of that further delay is mitigated by the fact that investment income and interest continue to accrue on the funds held in trust by the receiver …”

As a result, the court approved the motion for an interim distribution to retail investors, but said that the amount to be paid out must be adjusted to reflect the still-unresolved $213 million Cerieco claim, until that dispute is resolved.

It also deferred a decision on the motion for a constructive trust until after the Cerieco claim is resolved.

At the same time, the court approved PwC’s proposed settlement with BlackRock, its methodology for allocating recovered assets between the Bridging funds, and its process for allocating the costs of the receivership and other expenses among the various funds.