The lawyers who initially won a surprise court victory that would have given certain investors priority in the ongoing receivership of a failed fund manager have decided not to take their case to the Supreme Court of Canada (SCC) after their initial win was overturned on appeal.
On Jan. 8, the law firms that were appointed by the Ontario Superior Court of Justice to represent certain groups of investors that were harmed in the collapse of Bridging Finance Inc. (BFI) will ask the court to discharge them from their mandate.
In 2022 the court appointed lawyers to represent two group of investors with potential claims to get money back first in the BFI receivership — investors whose redemption orders for their investments in BFI funds were in the midst of being processed when the firm was put into receivership, and fund investors who had rescission rights under securities law (based on alleged misrepresentations in offering documents).
Following a hearing, in early 2023 the Superior Court initially rejected the arguments seeking priority for investors whose redemptions were being processed, but it ruled that investors with rescission rights should have priority over other investors in the receivership.
On appeal the lower court’s decision was partially reversed.
In mid-November 2023, the Court of Appeal ruled that the rescission rights that investors have under securities law don’t take precedence over the principles of bankruptcy law, which require that all investors be treated equally.
The appeal court also upheld the lower court’s finding that the investors with unfilled redemptions aren’t entitled to priority in the receivership.
According to court filings, the lawyers for both sets of investors have now decided not to appeal these rulings to the Supreme Court on the grounds that an appeal would not be in the best interests of investors.
In their motion, the lawyers point to costs and delay involved with pursuing an appeal to the SCC that ultimately has a low likelihood of success.
As a result, they are asking to be relieved of the mandates set down in the original orders appointing them to represent the two groups of investors.
Both the fund manager’s court-appointed receiver, PricewaterhouseCoopers LLP, and lawyers appointed to represent investors’ interests in the case generally, support the decision not to pursue an appeal, the filings said.
Granting certain investors priority in the receivership would have had a significant impact on investors’ recoveries, as the two groups of investors with potential priority claims represented claims of over $400 million, in a case where investors collectively are expected to recover between $700 million and $900 million of the $2.1 billion that was invested in the Bridging funds.