Court File and Parties

COURT FILE NO.: CV-21-00661458-00CL DATE: 2022-03-30 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Ontario Securities Commission

• and - Bridging Finance Inc., Bridging Income Fund LP, Bridging Mid-Market Debt Fund LP, SB Fund GP INC., Bridging Finance GP INC., Bridging Income RSP Fund, Bridging Mid-Market Debt RSP Fund, Bridging Private Debt Institutional LP, Bridging Real Estate Lending Fund LP, Bridging SMA 1 LP, Bridging Infrastructure Fund LP, Bridging MJ GP INC., Bridging Indigenous Impact Fund, Bridging Fern Alternative Credit Fund, Bridging SMA 2 LP, Bridging SMA 2 GP Inc., and Bridging Private Debt Institutional RSP Fund

BEFORE: Chief Justice G.B. Morawetz

COUNSEL: John Finnigan, Grant Moffat and Adam Driedger for the Receiver, PricewaterhouseCoopers Inc. Adam Gotfried, for the Ontario Securities Commission Robert Staley and Kevin Zych, Representative Counsel for the Bridging Unitholders David Bish, for The Coco Group, 2693600 Ontario Inc., Rocky Coco and Jenny Coco Marc Wasserman, Martino Calvaruso and Justine Erickson, for BlackRock Financial Management, Inc. Steve Graff, for several investors in various Bridging Funds Steve Weisz, for the University of Minnesota Foundation Melissa Mackewn, for David Sharpe David Ullman, for Thomas Canning (Maidstone) Limited Lawrence Thacker, for Natasha Sharpe Domenico Magisano and Spencer Jones, for a Unitholder in the Bridging Funds Sharon Kour, for Certain Unitholders Jason Wadden, for Certain Unitholders

HEARD and DETERMINED: March 25, 2022 REASONS: March 30, 2022

Endorsement

[1] PricewaterhouseCoopers Inc. (the “Receiver”) of Bridging Finance Inc. and the other respondents (“Bridging”) seeks an order:

(a) approving the decision by the Receiver to reject the Remaining Revised Final Bids and to terminate the sale and investment solicitation process (the “SISP”) approved by order dated August 6, 2021 (the “SISP Approval Order”); and

(b) the sealing of Confidential Appendices “A”, “B”, and “C” (the “Confidential Appendices”) to the Tenth Report of the Receiver dated February 18, 2022 (the “Tenth Report”) until further order.

[2] The motion was originally returnable on February 25, 2022. It was adjourned to allow stakeholders time to fully review the recommendations of the Receiver and to provide a response, if so advised.

[3] The Receiver has since delivered its Supplement to the Tenth Report (the “Supplement”) providing information on the Receiver’s engagement with Unitholders and on the voting requirements in the constating documents of the various Bridging Funds. Representative Counsel (“RC”) delivered its Second Report (the “Second Report of RC”) which details its engagement with Unitholders and reasons for its recommendations to the Receiver. All capitalized terms not expressly referred to in this endorsement are as defined in the Tenth Report.

[4] RC and Lerners LLP, on behalf of a Unitholder in the Bridging Funds (the “Opposing Unitholder”) each filed a factum. A Reply Factum was filed by the Receiver.

[5] The Opposing Unitholder opposed the relief sought and also sought a further adjournment to permit: (i) a more fulsome discussion of the Investment Proposal, the Cash Proposal, and the Status Quo Option; (ii) a Unitholder vote; and (iii) a further process to solicit bids for an orderly liquidation of the Bridging Funds.

[6] Counsel on behalf of the Opposing Unitholder submits that as an alternative to terminating the SISP, there should be further consultation with Unitholders, including:

(a) further information sessions, including live sessions, with presentations from all relevant parties, and sessions that occur outside of traditional business hours; and

(b) providing opportunities for meaningful feedback from Unitholders, including a formal vote.

[7] In addition, and regardless of whether the SISP is terminated, counsel for the Opposing Unitholder submits that the Receiver and RC should commence a process to solicit bids for managing the orderly liquidation process through the realization period. Counsel takes the position that this will assist the Receiver and RC in determining whether the Status Quo Option is the most economical process and will yield the highest recovery to Unitholders.

[8] The adjournment request was considered as a threshold issue.

[9] In considering the merits of the adjournment requests, it is necessary to consider developments leading up to the original return date of February 25, 2022.

[10] On February 24, 2022, a motion record was served by Lerners LLP on behalf of the Opposing Unitholder. The motion record consisted of an affidavit from a law clerk, which in turn attached a letter from Lerners LLP. The letter raised a number of concerns in respect of the SISP, and the process by which RC obtained feedback from the Unitholders.

[11] The identity of the Opposing Unitholder remains undisclosed. The Opposing Unitholder’s holdings are not disclosed beyond information provided by counsel and that it is his understanding that the holdings are approximately $123,000 out of approximately $2 billion in total pre-Receivership “value” of all Bridging Funds.

[12] Counsel for the Opposing Unitholder submitted that bidders were not given the opportunity to submit proposals on managing an orderly liquidation of Bridging’s portfolio and that the Receiver and RC should therefore commence the process to solicit bids for managing the orderly liquidation process of the Bridging Loan Portfolio.

[13] The difficulty with the position being put forth by the Opposing Unitholder is that, notwithstanding an adjournment was granted four weeks ago, no evidence has been filed to support the concerns expressed in the Lerners letter, or in opposition to the evidence filed by the Receiver and RC.

[14] The Tenth Report, the Supplement, and the Second Report of the RC provide details with respect to the SISP process, the Investment Proposal, the Cash Proposal and the Status Quo Option, and the communications with Unitholders, including feedback from Unitholders.

[15] During the four week adjournment period, no party has changed its position and there is no indication that a further adjournment period would produce a change in position. On the other hand, there is evidence that Unitholders want to see this process proceed expeditiously in the hopes that distributions can be made.

[16] Simply put, there is no evidence before the court to support the adjournment request and I have not been satisfied that there is any benefit to be gained by granting a further adjournment.

[17] The adjournment request of the Opposing Unitholder is denied.

[18] Turning now to the merits of the motion, the Tenth Report and the Supplement provide detailed information on the Receiver’s engagement with Unitholders and on the voting requirements in the constating documents of the Bridging Funds.

[19] RC delivered its Second Report which details Unitholder engagement and the reasons for its recommendation to the Receiver.

[20] The Reply Factum filed by the Receiver is in response the Opposing Unitholder’s factum which raises the two issues: (i) whether the SISP should be terminated without further Unitholder consultation and a Unitholder vote; and (ii) regardless of whether the SISP is terminated, whether the Receiver should solicit bids for managing the orderly liquidation of the Bridging Loan Portfolio.

[21] With respect to the first issue, the Receiver submits that it has exercised its business judgment and determined that the best path forward for stakeholders is to reject the Remaining Revised Final Bids, terminate the SISP and continue with the Status Quo. The Receiver states that it has reached this conclusion based on the economic analysis of the Remaining Revised Final Bids, feedback from RC and through extensive Unitholder and other stakeholder engagement since the date of the Receiver’s appointment. The Receiver is of the view that the time and expense of engaging in further stakeholder consultation is not justified given that extensive stakeholder consultation has already taken place.

[22] The Receiver also submits that the SISP provides the Receiver with the discretion to terminate the SISP and does not contemplate nor require that a vote of the Unitholders be conducted to validate any decisions taken by the Receiver in connection with the SISP. The SISP Approval Order was obtained on notice and no party sought the inclusion of a Unitholder vote on bids received. Further, the Receiver submits that no evidence has been adduced that the Receiver has conducted the SISP otherwise than in accordance with the SISP Approval Order.

[23] The SISP provides that the Receiver may consult with Unitholders and other stakeholders regarding the conduct of the SISP. The Receiver points out that it made extensive efforts to consult with Unitholders and other stakeholders since the date of appointment including by: (i) consulting with RC; (ii) consulting with the Limited Partner Advisory Committee; (iii) responding to over 1200 inquiries from stakeholders through the Receiver’s hotline and the Receiver’s mailbox; scheduling and attending over 110 conference calls/video platform meetings with Unitholders and other stakeholders; (v) holding approximately 60 recurring video meetings with Institutional Unitholders; and (vi) engaging in various other ad hoc communications with stakeholders.

[24] Paragraph 47 of the SISP gives the Receiver the authority to terminate the SISP at any time. The Receiver states that it has determined, in its business judgment, that the best path forward for stakeholders is to reject the Remaining Revised Final Bids, terminate the SISP and continue with the Status Quo.

[25] The Receiver submits that there is no evidence that the Receiver’s implementation of the SISP was improvident or unfair in terms of process. Further, no party has objected to the Receiver’s activities or conduct.

[26] The Receiver also submits that there is a fundamental flaw with the Opposing Unitholder’s request for a vote: key terms of the Investment Proposal are unknown and would have to be finalized and documented before a Unitholder vote could be held. Those terms would be essential to Unitholders making an informed decision to vote for or against the Investment Proposal. In addition, the Receiver points out that the manner in which one or more Unitholder meetings would be called and voting would occur would have to be determined having regard to the terms of the Limited Partnership Agreements and Trust Agreements governing voting by each Fund. The Limited Partnership Agreements and Trust Agreements do not contemplate the holding of a single meeting of all Unitholders, and do not provide the same thresholds for Unitholder approval of the Investment Proposal. Consequently, if a vote (or a series of votes) were required, these issues would have to be resolved.

[27] RC has provided to the Receiver its independent recommendation that the SISP be terminated. The Receiver points out that RC was appointed to independently represent the interests of Unitholders. Based on RC’s consultative process, the Receiver submits there is clear support for the continuation of the Status Quo and there is no evidence that the consultative process was improvident or unfair or that the results of that process should be ignored or discounted.

[28] The second issue raised by the Opposing Unitholder is, regardless of whether the SISP is terminated, whether the Receiver should be required to undertake a further process to solicit bids for an orderly liquidation of the Loan Portfolio. Under the Receiver’s proposal, the Receiver will continue to consult with RC to ensure that the orderly liquidation of the Bridging Loan Portfolio is conducted in the most cost-effective way possible. RC will provide oversight and input to the Receiver and ensure that the orderly liquidation is conducted as cost-effectively as possible. Finally, the Receiver points out that there is no evidence to suggest that a further sales process, solely in respect of liquidation proposals, would yield any superior alternatives.

[29] RC supports the submissions of the Receiver.

[30] The feedback received by RC indicates that, approximately:

(a) 65% expressed a preference for the Receiver’s Continued Realization Plan;

(b) 25% expressed a preference for the going concern proposal;

(c) 3% expressed a preference for the Cash Proposal; and

(d) 8% indicated that they did not have sufficient information to make a decision or provided feedback that was clear not clearly in favour of one option.

[31] RC is of the view that, in light of the results of the solicitation for feedback, the support level demonstrated for the Receiver’s Continued Realization Plan, and the expressed desire of Unitholders to accelerate distributions to them, a formal vote would be a waste of time and money, and contrary to the wishes of a strong majority of Unitholders, with no realistic expectation of a materially different outcome. RC also emphasizes that there is no evidence before the court that the assertion of the Opposing Unitholder is accurate, or that a new sale process would result in superior offers to those that were received during the SISP.

[32] Further, RC points out that much of the feedback received was from investment advisors (“IAs”) on behalf of Unitholders and there is no evidence that Unitholders were uncomfortable with IAs submitting feedback on their behalf.

[33] Based on the feedback received, RC is of the view that a substantial majority of Unitholders prefer that the SISP be terminated, and that the Receiver’s Continued Realization Plan be pursued.

[34] RC also points out that the identity of the Unitholder remains undisclosed, as is the investment exposure beyond counsel’s advice that his understanding is that, as noted above, it is approximately $123,000 based on pre-Receivership evaluations, out of approximately $2 billion in total pre-Receivership “value” of all Bridging funds.

[35] RC is of the view that there is no need for further consultation, an Information Circular or a formal vote. There is no evidence that Unitholders were provided insufficient opportunity to provide feedback, or that further consultations would lead to a material difference in the feedback received. The feedback materially favours the Receiver’s Continued Realization Plan, and RC is of the view that there is little utility (and significant cost and expense) in continuing consultations with Unitholders and taking the steps required to hold a formal vote of Unitholders.

[36] Further, as referenced in the Second Report, RC points out that the going concern proposal would require the support, in a formal vote (which is not yet possible), of 66 2/3% of value of each class of Unitholders. Since 65% of Unitholders responding expressed support for the Receiver’s Continued Realization Plan, and in so doing conveyed views that are antagonistic to the going concern proposal, there is no realistic prospect that the requisite levels of support could be achieved and that the cost of providing for such a meeting is not a prudent use of Bridging’s limited financial resources.

[37] RC submits that deference is warranted with respect to the Receiver’s decision in the present case to terminate the SISP, a decision made in the exercise of business judgment after a fair and transparent SISP was carried out under the supervision of the court.

[38] Messrs. Graff, Wadden, Weisz and Ms. Kour, on behalf of their respective clients, support the position of the Receiver.

[39] Counsel on behalf of the Opposing Unitholder submits that while presented at the Information Sessions, the Status Quo Option did not form part of the SISP and as such, offers were not solicited, and bidders were not given the opportunity to submit proposals on managing an orderly liquidation of the Bridging portfolio. Counsel also submits that while termination of the SISP and approving the Status Quo Option may be the correct decision, there is simply insufficient information and insufficient consultation with Unitholders to approve the step at this time. Further, to approve the Receiver’s recommendations at this time would be tantamount to providing the Receiver with a single source contract to liquidate the response Loan Portfolio without any evidence that this option was exposed to the market. Counsel also submitted that the feedback received by RC from IAs may not properly reflect the views of retail investors.

[40] The Opposing Unitholder submitted no evidence on any of these issues. Conversely, I find that the detailed evidence of the Receiver as presented in its Tenth Report, the Supplement and in the Second Report of Representative Counsel, as well as the previous Receiver’s Reports, establishes the basis on which the Receiver has put forth its recommendation.

[41] Counsel to the Opposing Unitholder submits that as an alternative to terminating the SISP, there should be further consultation with Unitholders. I reject this submission. In my view, the evidence establishes that there has been significant consultation with Unitholders. Further, there is no evidence that would suggest that feedback from retail investors has not been taken into account.

[42] Counsel for the Opposing Unitholder also submits that regardless of whether the SISP is terminated, the Receiver and RC should commence a process to solicit bids for managing the orderly liquidation process through the realization. I reject this submission. No evidence has been filed that challenges the evidence put forth by the Receiver and RC, that it is both appropriate and reasonable to proceed with the Status Quo Option. Further, as noted in [28], the Receiver will continue to consult with RC to ensure that the liquidation will be conducted in a cost effective manner.

[43] The law is clear that in reviewing a sales process, the court is to defer to the business expertise of the Receiver and should not intervene or “second-guess” the Receiver’s recommendations (see: Royal Bank of Canada v. Keller and Sons, 2016 MBCA 46 at para. 11).

[44] RC referenced Marchant Realty Partners Inc. v. 2407533 Ontario Inc., 2021 ONCA 375 at para. 15, where Jamal J.A. (as he then was) quoted the following passage in Soundair, “they [courts] rely upon the expertise of their appointed receivers and are reluctant to second-guess the considered business decisions made by the receiver in arriving at its recommendations. The court will assume that the receiver is acting properly unless evidence to the contrary is clearly shown”.

[45] Further, as held by the Court of Appeal for Ontario and Royal Bank v. Soundair Corp. [1991] O.J. number 1137 (ONCA) (“Soundair”) at paras. 14, 21, 29 and 58, it is only in “exceptional” circumstances will a court intervene and proceed contrary to the recommendation of its officer, the Receiver.

[46] The Receiver submits that there are no “exceptional” or “special” circumstances that would lead the court to proceed contrary to the recommendation of the Receiver.

[47] Further, no evidence has been tendered that would raise any concern with respect to the actions of the Receiver. I am satisfied that the submissions of the Receiver and RC provide a complete answer to the submissions of the Opposing Unitholder.

[48] I am satisfied that the Status Quo Option, as recommended by both the Receiver and RC, represents the best possible outcome in these circumstances and it is approved.

[49] The Receiver has also requested an order sealing the Confidential Appendices.

[50] The Receiver takes a position that the Confidential Appendices contain the Remaining Revised Bids and the Receiver’s summary of the economic terms of the Remaining Revised Bids and Liquidation Model should be sealed. The Receiver is of the view that the terms of the Remaining Revised Bids are confidential and include confidential information or realization estimates related to certain borrowers or assets. The Receiver submits that the disclosure of the Confidential Appendices, and in particular the assessment of the Cash Proposal Bidder and the Investment Proposal Bidder, by the Receiver of the value of the loans or assets, may negatively impact future realizations on the assets and thus the Receiver’s efforts to maximize value for stakeholders. In addition, the Receiver points out that the disclosure of such confidential and commercially sensitive information would undermine the confidentiality rights and/or obligations of the Receiver, the Cash Proposal Bidder, the Investment Proposal Bidder and Certain Borrowers.

[51] The jurisdiction to grant a sealing order is found in s. 137(2) of the Courts of Justice Act and the test for the granting of such relief is set out in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, which test was recently restated by the Supreme Court of Canada in Sherman State v. Donovan, 2021 SCC 25 at paras. 37 – 38 where Kaiser J. wrote that:

[37] Court proceedings are presumptively open to the public.

[38] The test for discretionary limits on presumptive court openness has been expressed as a two-step inquiry involving the necessity and proportionality of the proposed order (Sierra Club, at para. 53). Upon examination, however, this test rests upon three core prerequisites that a person seeking such limit must show. Recasting the test around these three prerequisites, without altering its essence, helps to clarify the burden on applicants seeking an exception to the open court principle. In order to succeed, the person asking a court to exercise discretion in a way that limits the open court presumption must establish that:

(1) court openness poses a serious risk to an important public interest;

(2) the order sought is necessary to prevent this serious risk to the identified interest because reasonably alternative measures will not prevent this risk; and

(3) as a matter proportionality, the benefits of the order outweigh its negative effects.

[52] No party opposed the sealing request.

[53] In my view, I am satisfied that the Receiver has satisfied the foregoing test in that the disclosure of the information in the Confidential Appendices would have a negative impact on future realizations on the assets and thus the Receiver’s efforts to maximize value for stakeholders. Further, there are no reasonable alternatives to the sealing order in the circumstances and in my view, no stakeholders will be materially prejudiced by sealing the Confidential Appendices and the salutary effects of granting the relief outweigh any deleterious effects.

[54] Accordingly, I am satisfied that the Confidential Appendices should be sealed pending further order of the court.

[55] Finally, the motion makes reference to proposed amendments to the Appointment Order, which would authorize the Receiver to liquidate the Property of Bridging, without the requirement for Court approval for transactions having a value below certain thresholds. The determination of this issue is deferred to a future date.

Disposition

[56] In summary, the SISP gives the Receiver the authority to terminate the SISP. The Receiver has determined, in its business judgment, that the best path forward is to terminate the SISP and continue with the Status Quo. The recommendation of the Receiver has overwhelming support. RC supports the recommendation of the Receiver, as do a substantial majority of Unitholders. Only one Unitholder opposes the recommendation of the Receiver. There are no exceptional circumstances that would cause me to intervene and proceed contrary to the recommendation of the Receiver, which recommendation I accept.

[57] The relief requested by the Receiver as outlined in [1] above is granted.

Chief Justice G.B. Morawetz

Date: March 30, 2022