With court filings indicating that investor losses will likely amount to hundreds of millions of dollars, lawyers for the receiver in the Bridging Finance Inc. case are warning regulators not to disrupt ongoing efforts to maximize recovery for investors.
In a Thursday hearing before the Ontario Securities Commission (OSC), counsel for PricewaterhouseCoopers Inc. (PwC) warned the regulator’s panel against making rulings that could disrupt the court-supervised receivership of the troubled fund manager. PwC was appointed as BFI’s receiver earlier this year at the OSC’s request.
The hearing addressed an application from former BFI CEO David Sharpe arguing that OSC staff improperly disclosed the contents of his compelled testimony in its application to appoint a receiver over the company. Among other relief, Sharpe is seeking to have the investigation order that underpinned the OSC’s application to the court quashed.
Thursday’s hearing examined preliminary questions raised by Sharpe’s application, including whether the OSC can publicly disclose compelled testimony without first seeking permission; and, if not, whether revoking the investigation order represents a remedy to that.
At the hearing, counsel for PwC warned the commission panel against rulings that could disrupt its efforts to maximize recovery for investors as part of its process to sell BFI assets.
In its latest report to the court, PwC said it will seek an extension on the deadline for its sale process from Dec. 31 to Feb. 28, 2022. PwC cited the “complexity” of the bids for BFI assets as well as the time required to “independently assess and negotiate such bids” with counsel that has been appointed to represent investors in the case.
At the same time, PwC’s latest report provides an estimate of the scale of possible investor losses in the case.
The report indicated that the BFI funds could claim a “doubtful debt deduction” of $580 million — representing loans that are unlikely to be repaid, or are considered impaired — on a loan book valued at more than $1.6 billion as of Oct. 31.
“Based on the analysis undertaken, the receiver proposes that certain Bridging funds claim a doubtful debt deduction … for their 2021 taxation year,” the report said. “The receiver anticipates that the doubtful debt deduction will result in an income tax loss for the applicable Bridging funds and should be allocated to the respective unitholders,” it said.
The amount of the proposed deduction is preliminary, and will be finalized in 2022 before the funds have to make their tax filings, the report said. It warned that the ultimate investor losses could prove larger.
“The receiver estimates, for some or all of the Bridging funds, that the total overall loss may ultimately be greater than the amount of the doubtful debt deduction,” it said.
The report indicated that the receiver will also ask the court for permission to allow investors that need to convert their RRSPs into RRIFs to transfer their BFI units, despite the fact that the receiver has been unable to determine a net asset value (NAV) for those funds.
It noted that the Canada Revenue Agency has agreed to allow such transfers to take place on the condition that once a NAV is available, it will be used to determine the fair value of the transferred units as of Jan. 1.
PwC will also seek approval to allow the transfer of units from deceased investors to their heirs, or their estates.
The court hearing to consider PwC’s latest requests is scheduled for Dec. 22 before Chief Justice Morawetz in the Ontario Superior Court of Justice.
Following Thursday’s hearing, the OSC panel reserved its decision on the preliminary issues argued before the tribunal. The broader questions raised by Sharpe’s application will likely be considered at a future hearing.