Business lawyer team. Working together of lawyer in the meeting.

All investors should suffer equally in the collapse of Bridging Finance Inc., according to court-appointed lawyers representing the interests of retail investors in the firm’s receivership.

Ahead of a hearing scheduled for mid-November to determine whether certain investors have a priority claim on the assets of the Bridging funds as they’re wound up, court filings set out the position of representative counsel Bennett Jones LLP, which was appointed to represent investors in October 2021.

BFI investors are expected to recover between 34% and 41% ($701 million and $880 million) of the $2.1 billion in assets held by the Bridging funds when the firm was ordered into receivership amid regulators’ concerns about possible misconduct.

Different investor groups argue they’re entitled to be paid back first as the funds are liquidated. These include investors who had outstanding, unfulfilled redemption requests at the time of the receivership and investors who bought the funds in the period shortly before the receivership, relying on offering documents that allegedly contained misrepresentations.

These groups of investors are seeking to “elevate their recovery” and seek “a full recovery in respect of such claims to the further detriment of the general body of unitholders,” noted the filing, which argued that all investors should be treated equally.

“In addition to the fact that there is no legal basis for any such priority, no one can seriously suggest that granting [certain investors] a priority recovery over general unitholder claims would be an equitable result of the impact of the mismanagement (among other things) of the Bridging funds,” it said.

An earlier filing by the firm’s receiver, PricewaterhouseCoopers LLP, indicated that if those claims are granted priority and upheld, the remaining investors would be left with between 17% and 26% of the funds’ assets.

The filing argues that the funds’ governing legislation provides equal rights to all investors; that distinctions between investors can’t be established based on the timing of when the funds were bought; and that all investors must be treated equally by the rules of insolvency proceedings.

“The pari passu rule has been a bedrock principle of Canadian law for well over 100 years and there is nothing in this motion which displaces its application to the facts in this case,” it said.

“The fact is, in this unfortunate scenario, there is no equitable or legal basis for any outcome other than the unitholders sharing rateably in the recovery from the liquidation of the applicable Bridging funds,” it said. “In the circumstances, that is the only fair result.”

Responses from the counsel for investor groups that seek to claim priority are scheduled to be filed by Nov. 3, with a reply from the receiver and representative counsel due Nov. 9.

The hearing on whether certain investors are entitled to priority claims is slated for Nov. 16 and 17.