Priority, distribution issues dog Bridging proceeding

The receiver of failed fund manager Bridging Finance Inc. (BFI) says it’s too soon for a court to decide whether the funds’ assets should be consolidated before they can be returned to investors.

In new court filings, PricewaterhouseCoopers Inc. (PwC), said it is still considering whether the benefits of consolidation outweigh the prejudice to stakeholders.

The court filing comes ahead of a May 11 hearing on a motion from a couple of institutional investors – Blue Cross Life Insurance Co. of Canada and Canassurance Hospital Service – seeking a declaration that an investment fund created specifically for them by BFI should not be subject to consolidation with the other BFI funds.

Blue Cross and Canassurance are the only unitholders in that fund. The investors are also asking the court to approve another distribution of assets from that fund.

Last year, the court approved a $46 million distribution from the fund to Blue Cross and Canassurance. The institutions initially asked for the return of $78 million, but the court reduced the amount, in anticipation of a consolidation decision.

In its latest court filings, PwC said its delay on forming an opinion on consolidation is due to “significant uncertainty around the issue in respect of distribution and priority.”

It suggested the matter be addressed, at the distribution phase of the proceeding.

According to PWC,  it’s clear which loans and other assets belong to which BFI fund, but there remains uncertainty about how future assets that may be recovered in litigation, or through insurance, should be allocated between the funds.

There are approximately $263.3 million in claims against the funds, and $1.83 billion in claims against BFI, its general partners, and others.

“Certain claims have been made only against BFI. Certain claims have been made against a single Bridging fund, and other claims have been made against multiple Bridging funds,” it noted.

Additionally, there are issues of priority between fund investors to be resolved, it said.

Recently, the court ruled that investors with rights of rescission under securities law should take priority over other investors. That ruling could yet be appealed.

It also suggested that the way the fund manager operated should be factored into a decision about whether the funds’ assets should be consolidated in the receivership.

For instance, according to PwC’s filings, Bridging would transfer loan allocations between funds on an “ad hoc basis,” sometimes when the risk of default emerged, shifting risk between funds as a result.

“Based on information available to the receiver, it is unclear how the interests of the unitholders in each Bridging fund were protected or otherwise accounted for when BFI determined that a loan interest would be transferred between Bridging funds,” it said in its filings.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.