The receiver for failed alternative fund manager Bridging Finance Inc. (BFI) is recommending that a claim against Bridging’s flagship fund from a Chinese company be denied, alleging that the claim is based on a secret, improper loan guarantee.

Earlier this year, the Ontario Superior Court of Justice appointed a former judge, Douglas Cunningham, to take charge of adjudicating disputed claims against the Bridging funds, as part of the ongoing receivership proceedings.

In court filings, Bridging’s receiver, PricewaterhouseCoopers Inc. (PwC), said certain claims (amounting to $297 million) against the funds must be resolved before it can start distributing any money to retail investors.

According to PwC’s latest report to the court, the biggest of those disputed claims was made against the Bridging Income Fund LP by Cerieco Canada Corp. — a Markham, Ont., company that’s a subsidiary of Chinese state-owned China Machinery Engineering Corp.

Cerieco is seeking $213 million that, it said, it is owed under a loan guarantee, allegedly provided by the Bridging fund in connection with a construction loan that Cerieco made to Mizrahi Commercial (The One) LP, a major real estate development project in midtown Toronto.

That loan has not been repaid by the Mizrahi project, and Cerieco sought to enforce the guarantee against the fund.

However, the receiver has disallowed the company’s claim, ruling that the loan guarantee was made without the knowledge of the fund or its general partner, and that it represented a fraud on the fund.

There haven’t been any formal allegations of fraud involving this transaction. Ongoing regulatory proceedings brought against several Bridging executives by the Ontario Securities Commission don’t include any allegations related to this transaction. And none of the allegations made in the receivership filings has been proven in court.

Yet, according to PwC’s latest report, the receiver has determined that the guarantee provided by the Bridging fund to Cerieco was improper because, it alleged, the guarantee was made in secret by BFI co-founder Natasha Sharpe, and that she wasn’t authorized to provide the guarantee on behalf of the fund.

According to the report, the fund didn’t receive any consideration for providing the guarantee. Instead, the receiver said its investigation found that Sharpe was promised a 5% stake in the project in exchange for pledging the fund’s balance sheet to help secure financing for the project, and that this wasn’t disclosed to the fund, its general partner or its investors.

In denying the company’s claim against the fund, PwC said the guarantee wasn’t valid, that the provision of the guarantee amounted to a fraud on the fund, and that Cerieco knew, or should have known, that the guarantee wasn’t properly authorized by the fund.

Cerieco has since disputed PwC’s decision to disallow its claim, and is seeking $213 million from the fund.

In its filings to appeal PwC’s decision, the company said it takes no position on the allegations of fraud, but it maintains that the guarantee represents a valid, binding claim on the fund.

The company indicated it was acting in good faith, and is entitled to rely on the representations it received when the guarantee was provided. And it denied it had any reason to suspect that the guarantee wasn’t valid or that there was any misconduct involved in securing the guarantee.

PwC has recommended that Cunningham deny Cerieco’s claim — a decision that will have a significant impact on the amount of money the Bridging fund investors ultimately stand to recover from the receivership proceeding, given that it’s expected that Bridging fund investors will recover between $669 million and $763 million of the more than $2 billion that was invested in the funds.