Mar 24, 2022
Bridging Finance investor speaks out as PwC pushes for wind down
Bridging Finance investors seek stronger say in fund's future
A group of Bridging Finance Inc. (BFI) investors plan to make a last-ditch effort in an Ontario court Friday to allow them to have a greater say in the future of the troubled private debt lender rather than have its court-appointed receiver wind down the firm.
A filing made by Lerners LLP Partner Domenico Magisano on behalf of “certain Bridging unit holders” on March 18 to the Superior Court of Justice outlines that the investor group believes there has been insufficient information given to them to go forward with a proposed wind-down of BFI’s assets by PricewaterhouseCoopers Inc. (PwC), which has been in control of BFI since the firm was rushed into receivership last year at the behest of the Ontario Securities Commission (OSC). PwC has indicated investors in BFI’s funds stand to lose more than $1 billion in a liquidation.
“To approve [PwC’s] recommendation at this time would be tantamount to granting [PwC] with a single source contract to liquidate the respondents’ loan portfolio without any evidence that this option was exposed to the market,” the filing states.
The filing was made during a court hearing last month when PwC proposed ending its attempt to sell the firm and instead liquidate the firm after identifying “significant issues” with many of its loans. PwC added that offers to buy BFI’s loan portfolio and other assets were too risky to warrant pursuing, and stated that it stands to earn up to $42.5 million in “professional fee” costs related to the wind down. Magisano said in an email that he represents eight people that have invested a total of $800,000 in BFI’s funds.
If the Ontario court approves a wind-down, it would mark an anti-climactic end for the lender whose executives, including former Chief Executive Officer David Sharpe, were accused of misappropriating millions of dollars from its investment funds, failing to disclose alleged payments made to Sharpe’s personal chequing account by an intermediary and improper dealings with two key clients, Sean McCoshen and Gary Ng.
None of the allegations have been tested or proven in court or before the OSC.
While PwC argues that liquidating BFI may be the best outcome for the firm’s 26,000-odd unitholders who are eager to recover as much of their investment as possible, one investor told BNN Bloomberg that he simply didn’t have enough available information from PwC.
Mike White, a 48-year-old who lives in Belleville, Ont., invested about $133,000 of his family’s retirement savings in BFI in what he said he believed at the time was a “safe investment” that would generate better returns than a mutual fund.
“I did my due diligence,” White said in an interview. “I read through all the documentation, the investor forms, I went back several years on [the firm’s] past performance. It seemed to me that I was going to be investing in what was quite a secure investment.”
But since the OSC disclosed its investigation of BFI in Apr. 2021, White said he’s been frustrated and confused by PwC’s effort to recover as much of the firm’s loans as possible and is concerned that he could stand to lose as much as 70 per cent of his initial investment.
“I just believe that I haven't been provided accessible information that would help facilitate an informed unitholder vote in order to decide on what outcome I’m going to choose,” White said. “There may be other unitholders in our group who decide that the wind-down plan is the best option, or that the going concern proposal is the best option but at this point, I just believe that having accessible information is needed in order to facilitate that informed vote.”
Lerners’ filing stated PwC conducted one live information session and several pre-taped sessions for investors to discuss potential sale options under short notice, failed to deliver “critical presentations” including information about bidders for BFI’s business, and presented feedback to unitholders that was erroneously interpreted to show a majority of people were in favour of its proposal to wind down BFI’s assets.
White said he attended one of the information sessions and that after it ended, he was asked to indicate which proposal he would prefer to move forward with, but it didn’t disclose his response would be a formal vote on how PwC should proceed.
“I had the impression from that presentation that what was being discussed at that time did not constitute a vote, which gave me the impression that eventually there would be a vote, so that all unitholders would be heard,” he said.
A PwC spokesperson declined to comment on the investors’ concerns ahead of the court hearing.
"The receiver will not be responding to specific questions or public statements, communication will be delivered through receiver reports that can be found on the PwC website and through statements in court," said Chiara Battaglia, national public relations manager at PwC, in an email.
The Lerners filing recommends further consultations with investors, in addition to providing “opportunities for meaningful feedback from unitholders, including a formal vote.” It added that PwC should also solicit bids for other firms to manage the “orderly liquidation process” to determine if that would generate a higher return for investors than a wind down.