The court ruling that gave one group of investors priority in the receivership of failed manager Bridging Finance Inc. is facing appeals.

In April, Chief Justice Geoffrey Morawetz of the Ontario Superior Court of Justice ruled that one group of Bridging unitholders — investors who had purchased funds within 180 days of the receivership — have a claim to recover assets before other investors.

According to that decision, under securities law, those investors are entitled to nullify their original investments and get their money back, based on the fact that there were misrepresentations in the offering documents.

At the same time, Morawetz rejected an effort seeking priority for another subset of Bridging unitholders — investors who had submitted redemption requests, but whose orders had yet to be processed, when the firm was placed into receivership.

The Ontario Securities Commission (OSC) imposed a cease-trade order on Bridging amid concerns about suspected misconduct and PricewaterhouseCoopers Inc. (PwC) was appointed as the firm’s receiver in April 2021.

The OSC has since alleged fraud against former top executives at Bridging. Those allegations have not been proven.

Appeals are now underway regarding the Ontario Superior Court ruling on investor priority claims in the receivership.

According to court filings, the law firm appointed to represent the interests of investors in the firm’s receivership, Bennett Jones LLP, has filed an appeal of the decision to grant priority to the so-called “rescission unitholders.” The appeal seeks to overturn the ruling, asking the appeal court to find that all investors should be treated equally.

In its filings, the firm argued that the decision to grant priority to the rescission unitholders represents an error in law as it relies on the conclusion that securities law creates a “de facto priority” for investors that supersedes the basic principle that investors should be treated equally in an insolvency proceeding.

The decision creates an “untenable distinction” between insolvencies that occur under Ontario securities law and insolvencies that happen in other circumstances, the firm argued. It said the judge erred by effectively creating a new category of secured creditors in an insolvency “without any statutory authority or legal basis to do so.”

At the same time, the so-called “redemption unitholders” are also appealing the ruling that they aren’t entitled to priority. That appeal argues that Chief Justice Morawetz erred in his interpretation of the Bridging funds’ constating documents — which, they maintain, created an “enforceable liability” requiring that the redemptions be honoured before the process of winding down the firm and distributing assets to investors takes place.

Bridging’s court-appointed receiver, PwC, has filed a response, opposing the redemption unitholders’ appeal.

“Such decisions attract a high degree of deference from appellate courts and will only be interfered with where there has been a palpable and overriding error. There has been no such error here and the appeal should be dismissed,” it argued.

“The redemption claimants are recycling the same argument that was rejected by Chief Justice Morawetz,” it said.

PwC also reiterated that it supports Bennett Jones’ appeal of the decision granting priority to the rescission unitholders. It maintains that all investors should be treated equally in the receivership.

“All unitholders are innocent victims of the wrongdoing uncovered at Bridging,” PwC said in its filing.

As it stands, investors are expected to get back between $701 million and $861 million of the $2.1 billion invested in the Bridging funds. Granting priority to the rescission unitholders could reduce that recovery to between $498.6 million and $658.6 million for other investors, while prioritizing the redemption unitholders could reduce projected recoveries for other investors by up to $218.8 million, court filings show.