COURT FILE NO.: CV-21-661458-00CL

DATE: 2023-04-12

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ONTARIO SECURITIES COMMISSION

Applicant

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

Respondents

BEFORE: Chief Justice G.B. Morawetz

COUNSEL: Robert Staley, Kevin Zych and Thomas Gray, Representative Counsel to the Bridging Unitholders

Robb English, Hansen Wong and Mark Van Zandvoort, for the Redemption Claimants for the Unitholder Priority Motion

Steven Weisz, for University of Minnesota Foundation

Asim Iqbal, Gavin Finlayson and Matthew Smith for Misrepresentation Claimants

Grant Moffatt, John Finnigan and Adam Driedger, for the Receiver

Ryan Taylor, for David Sharpe

Claudia Giroux, for the Receiver’s Québec Counsel

Sylvain Rigaud, Eric Bedard, Émile St-Pierre and Simon-Alexandre Poitras, in their capacity as Québec Representative Counsel

HEARD: November 16 and 17, 2022

ADDITIONAL SUBMISSIONS: February 24, 2023

ENDORSEMENT

[1] PricewaterhouseCoopers Inc. (“PwC”) in its capacity as Receiver and Manager of all of the assets, undertakings, and properties (collectively, the “Property”) of each of the Respondents (in such capacity, the “Receiver”) brings this motion for an order declaring that:

(a) Neither the Potential Statutory Rescission Claims nor the Potential Redemption Claims (collectively, the “Potential Priority Claims”) are entitled to any priority over General Unitholder Claims with respect to the distribution of proceeds of the Bridging Funds; and

(b) All Unitholder Claims, including, without limitation, the Potential Priority Claims and the General Unitholder Claims, shall rank pari passu with respect to the distribution of proceeds of the Bridging Funds.

[2] The issue to be decided is whether the holders of valid Potential Statutory Rescission Claims and/or Potential Redemption Claims are entitled to any priority over General Unitholder Claims with respect to the distribution of proceeds of the Bridging Funds.

[3] The purpose of the motion is not to determine which Unitholders have Potential Priority Claims, the validity of such claims, or to determine the quantum of any claims, including General Unitholder Claims. The determination of such claims will be made at a later date and will depend on, among other things, factual circumstances that may be unique to each Unitholder as well as the determination of this motion. Further, the purpose of this motion is not to determine whether the holders of Potential Statutory Rescission Claims and/or Potential Redemption Claims are entitled to any priority inter se.

[4] The evidence for this motion is set out in the Thirteenth Report of the Receiver, to which is attached the Agreed Statement of Facts dated October 12, 2022. The Agreed Statement of Facts is attached as Schedule “A” to this endorsement (without appendices).

[5] Capitalized terms in this endorsement have the meaning ascribed to them in the Agreed Statement of Facts unless defined otherwise.

[6] Factums were filed by the Receiver, Court-appointed Representative Counsel, Court-appointed Redemption Representative Counsel, Court-appointed Representative Counsel for Misrepresentation Claimants and Court-appointed Québec Representative Counsel.

[7] These proceedings were commenced on April 30, 2021, when the Ontario Securities Commission (“OSC”) issued an Application requesting an order pursuant to section 129 of the Ontario Securities Act (“OSA”) seeking to place the Respondents into receivership.

[8] Section 129 of the OSA provides:

129(1) The Commission may apply to the Superior Court of Justice for an order appointing a receiver, receiver and manager, trustee or liquidator of all or any part of the property of any person or company.

(2) No order shall be made under subsection (1) unless the court is satisfied that,

(a) the appointment of a receiver, receiver and manager, trustee or liquidator of all or any part of the property of the person or company is in the best interests of the creditors of the person or company or of persons or companies any of whose property is in the possession or under the control of the person or company or the security holders or subscribers to the person or company; or

(b) it is appropriate for the due administration of Ontario securities law.

Powers of Receiver,

(5) A receiver, receiver and manager, trustee or liquidator of the property of a person or company appointed under this section shall be the receiver, receiver and manager, trustee or liquidator of all or any part of the property belonging to the person or company or held by the person or company on behalf of or in trust for any other person or company, and, if so directed by the court, the receiver, receiver and manager, trustee or liquidator has the authority to wind up or manage the business and affairs of the person or company and has all powers necessary or incidental to that authority.

[9] Justice Hainey heard the application and released this endorsement on April 30, 2021:

[1] I am satisfied that the order sought on this application is in the best interests of the investors and will further the due administration of Ontario securities law. The motion is therefore granted on the terms of the attached orders.

Position of the Receiver and Representative Counsel to the Bridging Unitholders

[10] The Receiver and Representative Counsel to the Bridging Unitholders take a common position regardless of whether the claim is for redemption or rescission, that:

(a) there is no provision for priority in the Limited Partnership Agreement or Trust Agreements;

(b) there is no provision for priority under the Limited Partnership Act, R.S.O. 1990, c. L 16 (“LPAO”)

(c) there is no provision for priority under securities legislation, common law or equity;

(d) it would not be an equitable result to find priority status for the two groups; and

(e) the pari passu principle applies and there is no express or constructive trust, such that investors must share pro rata.

[11] This position is based on the following.

[12] First, each Bridging Fund that is structured as a Limited Partnership is governed by a Limited Partnership Agreement (each, a “Limited Partnership Agreement”), which sets out the rights and obligations of the Unitholders and their Units. Unitholders who subscribe for Units become Limited Partners and agree to be bound by the applicable Limited Partnership Agreement.

[13] Each Bridging Fund that is structured as an unincorporated investment trust is governed by Trust Agreement (each, a “Trust Agreement”). Each Trust Agreement is an agreement among BFI (as fund manager) and the applicable trustee governing the operation of the trust and it sets out the rights and obligations of each Unitholder. The rights and obligations of Unitholders are governed by the laws of Ontario and Unitholders who subscribe for Units in the Bridging Funds structured as trusts are bound by the terms of the applicable Trust Agreement.

[14] Each Trust Agreement substantially provides for equal treatment among all Unitholders for all distributions.

[15] The Receiver submits that the Unitholders with Potential Statutory Rescission Claims and Potential Redemption Claims remain Unitholders in the Bridging Funds notwithstanding any rights or remedies available to them (or any steps taken to try to redeem Units prior to the receivership proceeding) and therefore remain bound by the applicable Limited Partnership Agreements and/or Trust Agreements.

[16] Second, the Receiver submits that the terms of the Limited Partnership Agreements in the Trust Agreements, as well as the Offering Memoranda, are consistent with the provisions of the LPAO. The LPAO governs Limited Partnerships in Ontario and sets out certain rights and obligations of Limited Partners, subject to the provisions of any applicable Limited Partnership Agreement. Reference was made to both section 14 and section 24 of the LPAO and regardless of whether the LPAO or the Limited Partnership Agreements apply, the Receiver submits that there is no language that expressly or implicitly provides that the Potential Statutory Rescission Claims or the Potential Redemption Claims are intended to have any priority in any circumstance. To the contrary, all applicable agreements and the governing statute expressly provide that all Unitholders are to participate equally, on a pro rata basis, with respect to any distributions.

[17] Third, with respect to any Potential argument stemming from common law or equity, the Receiver submits that there is nothing at common law or equity that would override the clear terms of the Limited Partnership Agreements or the Trust Agreements, or otherwise suggest that the Potential Statutory Rescission Claims or Potential Redemption Claims are entitled to priority over the General Unitholder Claims.

[18] The Limited Partnership Agreements and the Trust Agreements expressly provide that all Unitholders participate equally, on a pro rata basis, with respect to any distributions from the Bridging Funds, whether in the ordinary course or in the context of a dissolution.

[19] Fourth, the Receiver further submits that there is no equitable jurisdiction to depart from the contractual documents or the requirements of the governing legislation. In essence, all Unitholders are innocent victims of the failed investment strategy and business practices of Bridging. The Receiver has reported that Unitholders will suffer a significant shortfall on their advances to Bridging with realizations projected at 34% to 41%, which could decrease to 17% to 26% if priority is granted to the Potential Redemption Claims and the Potential Statutory Rescission Claims. The Receiver also submits that if priority is granted to the Potential Redemption Claims and the Potential Statutory Rescission Claims, this would give rise to an inequitable result where Unitholders who purchased within 180 days of the Receiver’s appointment, or who happened to fortuitously submit a timely request to redeem would receive 100% recovery on their investment, while the vast majority of investors, who were equally misled and disadvantaged by Bridging, would receive 17% to 26%.

[20] Certain Unitholders provided notice of intention to redeem Units in the Bridging Funds prior to the date of appointment in the Temporary Order. The Receiver points out, however, due to, among other things, the Temporary Order and the Appointment Orders, such redemptions were not completed.

[21] Fifth, Representative Counsel to the General Unitholders submits that pursuant to the Agreed Statement of Facts, it is assumed “that the proceeds of the sale of the Bridging Funds will be less than the aggregate of Potential Statutory Rescission Claims, Potential Redemption Claims, General Unsecured Unitholder Claims and any additional claims determined in accordance with the Claims and Unitholders Identification Procedure or otherwise.” From this, Representative Counsel concludes that the Bridging Funds are insolvent.

[22] Representative Counsel contends that although no proceedings in respect of the Bridging Funds under the Bankruptcy and Insolvency Act (“BIA”) are currently extant, this does not change the fact that they are insolvent, the legal consequences resulting therefrom for the purposes of this motion, or the application of the pari passu rule.

[23] Representative Counsel notes that there are two Potential exceptions to equal and rateable distribution.

1. A priority conferred by statute; or

2. A situation in which the assets are not the property of the applicable Bridging Fund, i.e., a trust.

Representative Counsel concludes that neither exception applies in this case.

[24] The Potential Statutory Rescission Claims have a right of rescission under subsection 130.1(1) of the OSA, or the equivalent statutory provision in other jurisdictions or by contract as the case may be.

[25] Representative Counsel submits that the legislative right of rescission provides these claimants with a cause of action but none of the applicable statutes give any priority to any such cause of action, let alone includes the clear express language that would be required to create such a novel statutory priority. The holders of Potential Statutory Rescission Claims still have to satisfy the court that a statutory right of rescission creates a priority in circumstances that a common law or equitable right of rescission does not. Representative Counsel submits that as there is nothing in the statutes to provide for such a priority, it is difficult to understand on what basis the Potential Statutory Rescission Claims could have a priority over all other Unitholders.

[26] Representative Counsel also points out that the residency of a Unitholder, and a potential cause of action under a different provincial statute does not and cannot change the application of the pari passu principle. The rights of Unitholders between each other can only be governed by the documents and law applicable to the Units that they hold.

[27] In this case, each Unitholder signed up and agreed to be part of, and subject to, the rules and operating regulations of Ontario Limited Partnerships or Ontario Investment Trusts, depending on the applicable Bridging Fund. The residency of a Unitholder cannot provide new substantive of rights and priorities that override the rights of Unitholders in the same Bridging Fund simply on the basis that they reside in another province.

[28] Representative Counsel also submits that situations in which methods other than a pro rata distribution have been considered are generally those in which a determination is made as to whether certain funds should form part of a trust. Representative Counsel goes on to submit that the notion that a constructive trust may be found for some Unitholders and not others is not supported by legal or equitable principles.

[29] In summarizing its position, Representative Counsel submits that the Agreements governing the Unitholders in the Bridging Funds, the applicable statutes and the pari passu principle all demonstrate that there is no priority intended or existing for a select group of noteholders.

Position of Representative Counsel for Redemption Claimants

[30] Counsel on behalf of the Redemption Claimants takes the position that the distinct legal rights following a valid exercise of a contractual right of redemption must be enforced. Counsel submits that the Redemption Date for many of the Unfulfilled Redemption Requests arrived on or before April 30, 2021, before the appointment of the Receiver and the Temporary Order being issued and thus should have priority and be paid in their entirety before a pari passu distribution.

[31] The redemption process under Limited Partner Agreements can be summarized as follows:

(a) the limited partner submits the request for redemption (section 5.1(a)).

(b) the applicable “Redemption Date” is the first Valuation Date at least 30 days (or 90 days where such period was amended) after the request for redemption is submitted (sections 1.1 and 5.1(a)).

(c) the Redemption proceeds are valued as of the Redemption Date (section 5.1(a)). and

(d) the redemption proceeds must be paid not later than 30 days following the Redemption Date (section 5.1(c)).

[32] The BIIF, FERN, MMF RSP, and BPDI RSP trusts are governed by the same master trust agreement (the “Master Trust Agreement”). The Master Trust Agreement contains a near identical process for redeeming a unitholder’s units to the BIF RSP Trust Agreement.

[33] Counsel on behalf of the Redemption Claimants takes the position that the Agreements for the Limited Partnerships and Trusts created an enforceable liability pursuant to which Redemption Claimants are required to be paid within 30 days of the Redemption Date as specified by the contract. The BIF RSP Trust Agreement provides that a unit is only outstanding until the valuation date on which the redemption price is calculated, after which time the redemption price “of such unit shall be deemed to be a liability of the fund…”. Similar language is found in the Offering Memorandum to the LP Agreements. Consistent with the foregoing, the Funds’ Financial Statements reflected redemption payments owing as liabilities of the Funds.

[34] Counsel further submits that both the Limited Partnerships and the Investment Trusts, pursuant to the terms of the LPAO and the constating documents governing these Funds, indicate that those who submit a redemption request are to be paid in priority to nonpriority Claimants.

[35] Once a Limited Partner submits a redemption request to redeem a specified number of Units (the “Redemption Units”), a Limited Partner is not required to take any further steps, and the request is subject only to the specified discretion of the general partner to refuse the redemption prior to the redemption date in circumstances where, in the view of the general partner, it would be prejudicial to the partnership (section 5.1(g)).

[36] Counsel submits that certain of the LP Agreement Offering Memorandum also provide that “redemption price of the unit being received, until paid, shall be deemed to be a liability of the partnership.”

[37] Counsel also notes that Bridging purported to amend the Limited Partnership Agreement so as to extend the redemption notice periods from 30 days to 90 days in December 2020, thereby potentially affecting the calculation of the applicable redemption dates of such Redemption Claimants. Counsel submits that for two of the Funds (BIF and MMF), the meetings where this amendment was made did not achieve the quorum, such that the amendments were never duly passed, resulting in additional matured redemptions at the time of the Receiver’s appointment on April 30, 2021.

[38] Counsel to the Redemption Claimants states that notwithstanding the clear process for the Unitholder to redeem its Units pursuant to the constating agreements and offering memoranda, SS & C, the administrator appointed by Bridging, followed its own internal process when recording and administering redemption requests. While the effective date of a duly requested and accepted redemption would be the applicable Valuation Date, the redemption would not be priced or considered by the Fund Administrator to be “contracted” until the NAV was calculated for such Valuation Date, which typically occurred approximately 3 to 4 weeks following such Valuation Date.

[39] Counsel goes on to submit that absent Bridging taking a positive step to reject a redemption request, the Bridging Funds were obligated to make payment to the redeeming Unitholders and the payment would become an enforceable liability of the Fund as at the redemption date until such payment was made.

[40] On April 30, 2021, the OSC issued a cease trade order suspending all trading and securities of the Bridging Funds with the exception of BPDI RSP and FERN and (the “Temporary Order”).

[41] At approximately 4:00 p.m. on April 30, 2021, the court ordered, pursuant to section 129 of the OSA, that PwC be appointed as receiver and manager over the affairs of Bridging and for each of the Bridging Funds except for BPDI RSP. The Receiver’s appointment was extended to BPDI RSP on May 3, 2021.

[42] Also on April 30, 2021, redemptions having a Valuation Date of March 31, 2021 were processed and paid earlier in the day prior to the Appointment Order being granted. It is the position of the Redemption Claimants that redemption requests having an April 30, 2021 Valuation Date had been similarly vested prior to the issuance of the Appointment Order and the Temporary Order.

[43] Counsel submits that the Bridging Funds have not been formally dissolved or terminated. The LP Agreements provide for dissolution to occur should the general partner be placed into receivership and provided that a receiver performs its functions for 60 consecutive days. The Funds were not dissolved at the time the redemption requests were made and no order has been made declaring them dissolved. Consequently, the Trusts are different in that there is no provision for their dissolution on a Receivership, but only on a notice of termination, which has never been given.

[44] Finally, even if the Limited Partnerships were dissolved, that would not alter the outcome, as section 10.1(c)(ii) of the LP Agreement and section 24 of the LPAO permit Redemption Claimants to be paid a liability owing to them prior to a distribution to nonpriority Claimants.

[45] Counsel further submits that in arguing that the pari passu rule ought to be applied to trump the contractual entitlement of Redemption Claimants, the Receiver and Representative Counsel have incorrectly assumed that the Bridging Funds are insolvent.

[46] In summary, Counsel submits that all parties to the motion agree that the effective date of a duly requested and accepted redemption would be the applicable Valuation Date. The Redemption Claimants’ position is that for many of the unfulfilled redemption requests, the redemption date arrived on or before April 30, 2021, prior to the issuance of the Appointment Order and the Temporary Order. The Redemption Claimants’ position is that the amendments to the BIF and MMF LP Agreements were not valid. If the amendments to the Redemption Notice Period are not valid, the notice period for BIF and MMF remains 30 days (instead of 90 days).

[47] As a result, all Limited Partners who submitted a redemption request in those two Funds from January through March 2021 would have vested redemption dates as of February 28, 2021, March 31, 2021, or April 30, 2021, being earlier than as recorded by Bridging or currently recognized by the Receiver.

Position of Representative Counsel on behalf of the Potential Statutory Rescission Claimants

[48] Representative Counsel on behalf of the Potential Statutory Rescission Claimants (also described as Counsel for the Misrepresentation Claimants) submits that the Potential Statutory Rescission Claimants are entitled to a priority over General Unitholder Claims and should not be subject to pari passu distribution.

[49] Misrepresentation Claimants have statutory remedies, or a contractual equivalent.

[50] Counsel submits that while all Unitholders are similarly situated in many respects, Unitholders who invested within 180 days of the appointment of the Receiver: (i) did not share potentially years of returns on their invested funds like other Unitholders; and (ii) have a Statutory Right of Rescission (or contractual equivalent) of which all Unitholders had notice. The nature of a rescission as a remedy creates a de facto priority. Misrepresentation claimants may annul their contracts, they are not bound by their terms, and have rights to a return of their Funds. Since the contract is annulled, its terms do not govern distributions. Finally, such Misrepresentation Claimants who elect to rescind are no longer Unitholders, and the provisions of the LPAO do not apply.

[51] Section 130.1 of the OSA provides that when an Offering Memorandum contains misrepresentation, a purchaser has (a) certain rights to pursue damages; or (b) a right of rescission. This right to choose a remedy exists regardless of whether a purchaser relied on the misrepresentation.

Liability for misrepresentation in offering memorandum

130.1(1) Where an offering memorandum contains a misrepresentation, a purchaser who purchases a security offered by the offering memorandum during the period of distribution has, without regard to whether the purchaser relied on the misrepresentation, the following rights:

1. The purchaser has a right of action for damages against the issuer and a selling security holder on whose behalf the distribution is made.

2. If the purchaser purchased the security from a person or company referred to in paragraph 1, the purchaser may elect to exercise a right of rescission against the person or company. If the purchaser exercises this right, the purchaser ceases to have a right of action for damages against the person or company. 2004 c. 31, Sched. 34 s. 7

[52] Further, those Unitholders who otherwise may not have had access to the statutory rescission rights were granted contractual rights under the Offering Memorandum of the Bridging Funds, which rights are equivalent to the rights conferred by the OSA. These Misrepresentation Claimants are identically situated to those Misrepresentation Claimants with purely statutory rights.

[53] Counsel submits that the Potential Statutory Rescission Claims are entitled to a priority over General Unitholder Claims for the following reasons.

[54] First, the nature of rescission as a remedy creates the factual priority:

(a) rescission is a statutory proprietary remedy for a wrong done creating a resulting trust on those facts and requiring the imposition of a constructive trust over the Misrepresentation Claimants’ monies in the hands of Bridging;

(b) the introduction of the pari passu principle or solvency requirement conflates damages in section 130.1(1)1., and rescission in s. 130.1(1)2. Damages and rescission are mutually exclusive;

(c) statutory rescission is a remedy conferred by the Legislature. Its application is nondiscretionary; and

(d) there are no bars to rescission on these facts.

[55] Counsel submits that once the statutory rescission remedy is exercised, the contracts are considered void ab initio. The parties are to be returned to the same position they were in before they entered into the contract. In this case, this means a return of investment principal, minus any benefit obtained by the rescinded contract.

[56] Second, given their remedy, it is unfair for Misrepresentation Claimants to share pro rata in the Bridging Funds, especially where:

(a) relatively new investors minimally benefited from distribution;

(b) they will forgo the benefits they did receive and further damage claims; and

(c) General Unitholders had express notice of the rescission rights.

[57] Misrepresentation Claimants who elect the remedy of rescission cease to be Unitholders and are no longer bound by the contractual and statutory provisions which otherwise limit Unitholders to a pro rata distribution. They have an absolute right to the return of their investment principal, less any distributions received, regardless of whether they each relied on the misrepresentation.

[58] Counsel submits that rescission may be either proprietary or personal in nature and when setting aside of the transaction involves the reinvesting of property in another party, the relief granted is proprietary in nature. Upon rescission, the Misrepresentation Claimants’ Units will revest in Bridging.

[59] A constructive trust arises by operation of law where – on account of fraud, breach of fiduciary duty, or unjust enrichment – it would be against good conscience to allow the legal owner to retain the beneficial interest, such that equity converts the owner into a trustee.

[60] A resulting trust arises by operation of law to recognize beneficial entitlements – that is, “to return property to the person who gave it and is entitled to it beneficially, from someone else who has title to it”, such that the property results to the true owner. (See: Kerr v. Baranow, 1 S.C.R. 269, 2011 SCC 10).

[61] Counsel further submits that the relevant Trust Agreements provide that legal title to the Bridging Funds properties are held in trust for the Unitholders, which have the beneficial interest. This express trust fails once it is rescinded, having been vitiated by misrepresentation. Similarly, under the Limited Partnership Agreement, the general partner holds legal title to the partnership assets, but the beneficial interest lies with the Limited Partners (i.e., Unitholders).

[62] In both cases, a Resulting Trust arises by operation of law to return the property to the Misrepresentation Claimants upon failure of the express trust.

[63] Third, the moving party’s arguments do not foreclose de facto priority for Misrepresentation Claimants. The alleged insolvency of the Bridging Funds is no bar as rescission rights can be enforced against insolvent entities. This is an OSA Receivership, not a BIA proceeding and there is no paramountcy issue. The nature of the remedy creates the priority and section 130.1 of the OSA is a complete code governing the rights for security holders. Further, the contractual and statutory provisions which stipulate equal treatment for Unitholders do not bind Misrepresentation Claimants, as once they elect rescission they cease to be Unitholders.

[64] With respect to the argument, namely there is no residual discretion to refuse to enforce Statutory Rescission Rights, counsel submits that there is no judicial discretion embedded in section 130.1(1). Once the factual statutory criteria are met, the entitlement to rescission crystallizes.

Court-appointed Québec Representative Counsel

[65] Counsel poses the question as follows:

Should the Receiver honour the rights of Unitholders resident in Québec at the time of their subscription for Units, Potential Priority Claims (“Québec Claimants”) or should it instead ignore specific contractual rights granted to all Unitholders (but only exercised by certain) and imperative statutory protection aimed at protecting the Québec investing public and treat same as subordinated rights?

[66] For the purposes of this motion, which assumes that the applicable Offering Memorandum contains a misrepresentation, no obstacle to allowing Potential Québec Statutory Rescission Claims can be found. Indeed, the Québec legislation granted the Québec investor a right to rescind the subscription of securities and claim the restitution of the purchase price and presence of misrepresentations.

[67] Simply put, Potential Québec Rescission Claimants, as a result of rescission, are entitled to the return of their Property – their investment principal (less distributions received) – which no longer forms part of the estate of the Bridging Funds to be distributed amongst its creditors.

[68] Counsel submits that Québec Claimants’ right to assert priority over the General Unitholders stems from the fact that they have exercised or are entitled to exercise rights made available to Unitholders. As a result, certain Québec Claimants hold distinct and different legal rights and should be treated accordingly.

i. Redemption Rights

[69] Counsel submits that investors subscribed for their Units offered in the Bridging Funds pursuant to Offering Memoranda, investing in either Limited Partnership or Trust Agreements, which are all governed by Ontario law. Counsel goes on to explain that Potential Québec Redemption Claims are contractual in nature and as such are also governed by Ontario law, which is not supplanted or supplemented by mandatory provisions of Québec law.

[70] The equal treatment of creditors requires that the court direct the Receiver to honour Vested Redemption Rights (as defined below) given that Redemption Rights were granted to all Unitholders, who could opt to exercise same by providing a redemption request in accordance with the applicable Limited Partnership or Trust Agreements. Counsel submits that it would be unfair to disregard the valid exercise of a contractual right generally made available to all Unitholders and impose the same treatment to all Unitholders under the guise of fairness irrespective of the vesting in their favour of Redemption Rights.

[71] Counsel notes that the Receiver and Representative Counsel did not take the view that the exercise of Redemption Rights by Unitholders is governed by section 15 of the OLPA. Québec Representatives are of the same view in that the exercise of Redemption Rights does not provide for the repayment of the Redeeming Unitholder’s Contributions, but rather payment of the applicable net asset value per unit as defined and calculated pursuant to the applicable constating documents, is further evidenced by sections 10.1(f) of the applicable Limited Partnership Agreements, which provide that the Limited Partners have no right to request a return of the contribution except upon dissolution. (emphasis added)

[72] Counsel submits that the fallacy in the equal rights argument developed by the Receiver and the pari passu argument developed by Representative Counsel is twofold. First, contractual Redemption Rights are granted to all Unitholders pursuant to the applicable Limited Partnership and Trust Agreements, whereas Statutory Rescission Rights are also granted to all Unitholders in accordance with the applicable legislation or as provided by the Offering Memorandum. Second, the equal rights/pari passu argument ignores the fact that Potential Redemption Claimants, having validly exercise their contractual Redemption Rights, and Potential Statutory Rescission Claims both hold different and distinct legal rights from those of the other Unitholders with no such Potential Priority Claims.

[73] In this motion, the equal treatment of Unitholders is not engaged as they hold the same Redemption Rights under the applicable Agreements. The fact that only certain Unitholders elected to exercise their contractual rights and that only certain Unitholders are eligible to exercise their Statutory Rescission Rights sets them apart from the other Unitholders with General Unitholder Claims who have not elected to exercise the Redemption Rights or can no longer exercise their Statutory Rescission Rights.

[74] Counsel submits that honouring Vested Redemption Rights is not in breach of equal treatment of Unitholders as the right to redeem Units is available to every Unitholder, independent of the class or series of Units. The different and distinct legal rights of Potential Redemption Claimants are derived from a valid exercise of a contractual right to all Unitholders of the Bridging Funds and forms part of the bargain entered into by all Unitholders.

[75] The terms of the applicable Limited Partnership and Trust Agreements indicate that Units may be redeemed “on a Valuation Date”.

[76] Counsel points out that the Valuation Date and the valuation time, under the applicable Limited Partnership or Trust Agreements, are distinct. The redemption request crystallizes at 12:01 a.m. of the Valuation Date, notwithstanding that the value of same is established at 4:00 p.m. on the valuation date, at which time the Potential Redemption Claimants hold a Vested Redemption Right (the “Vested Redemption Right”).

[77] Counsel adds that the Fund Administrator’s internal practice with regards to the redemption is irrelevant for the purpose of this motion as it does not displace the Unitholders’ contractual rights.

[78] It is the position of Québec Representative Counsel than many of the Potential Québec Redemption Claimants hold Vested Matured Redemption Rights at the redemption date of April 30, 2021, at 12:01 a.m. or opening business or market hours which was in either case prior to the Appointment Order being issued later that day.

[79] Simply put, on redemption date, the applicable Trust Agreements provided that the Unitholder ceased to have any further rights with respect to such Units except to payment. Once a Unitholder’s redemption request matured, the value of the Redemption Claim became a vested and enforceable liability of the Limited Partnership. Consistent with the foregoing, Vested Redemption Rights were recorded as specific liabilities owed by the Bridging Funds in their unaudited internal financial statements, as distinct from the Unitholder’s contributions.

[80] Counsel concludes that the Receiver should be directed to honour Potential Redemption Claims who hold Vested Redemption Rights, meaning a redemption request that is crystallized on the Valuation Date, but prior to the Appointment Order issued at 4:00 p.m. on April 30, 2021.

ii. Recission Rights

[81] By contrast, the QSA governs the distribution of securities by Québec residents and is a law of the necessary application. Therefore, Potential Québec Statutory Rescission Claims are governed by the QSA. Two objectives underlie all provisions of the QSA: the protection of investors and the proper functioning of the market.

[82] To further its objective of maximizing the protection of Québec Securities Holders, the Québec Legislature dictated that the application of the QSA cannot be avoided. Section 236.1 mandates the application of the QSA in matters pertaining to the distribution of securities where the subscriber resides in Québec.

[83] The court should therefore only refuse to recognize or enforce the QSA if it is contrary to the fundamental public policy of Ontario or mandated by Ontario law. Nothing of the sort prevents the court from recognizing or enforcing the QSA.

[84] As a result of the immediate application of the QSA, the rights of Québec Unitholders “pertaining to the distribution of” Units by the Bridging Funds are governed by the QSA.

[85] Accordingly, the assessment of the Potential Statutory Rescission Claims by Québec Unitholders should therefore proceed with great consideration for this intent. It is also noted that the exercise of Québec Rescission Rights is “prescribed by the lapse of three years from the date of the transaction”, at least twice as long as in other Canadian jurisdictions.

[86] Counsel then addresses the issue of whether the Receiver should be directed to honour Potential Québec Statutory Rescission Claims.

[87] Section 217 of the QSA grants Québec investors the right to have their subscription of securities on the primary market rescinded in case a misrepresentation is contained in an Offering Memorandum (the “QSA Rescission Right”). In addition to the QSA Rescission Right, the QSA provides other distinct rights and remedies including the right of rescission of subscribers or acquirers of security without the required prospectus, the right to demand the revision of the price for securities subscribed or acquired in the same circumstances or in case of a misrepresentation made on the primary market, and the right to demand damages for misrepresentations for securities acquired on the secondary market.

[88] Counsel submits that it is assumed that the Potential Québec Statutory Rescission Claimants are entitled to obtain the rescission of the Units to which they subscribe, and the restitution of the price paid. Once the threshold conditions are met, the court has no jurisdiction to deny this remedy or to force the aggrieved Québec investors to accept damages instead.

[89] The practical consequence of rescission is to restore the parties to their previous state by restitution in their respective presentation. This conclusion follows from the application of article 1422 CCQ. The Civil Code is explicit in explaining that the restitution of pre-stations consists in returning to another person the Property received. This is in line with the consequences of rescission under Ontario law and is as automatic.

[90] In order for Potential Québec Statutory Rescission Claimants to be restored to their previous state, the Bridging Funds must return the money they received for the subscription of the Units subject to the exercise of QSA Rescission Rights and to which they have no more right. This should take place before the Funds from other Units are paid out in the context of the Receivership.

[91] In conclusion, counsel submits that Potential Québec Rescission Claimants are entitled to recover their investment principal (less distributions received) as the return of their property resulting from the exercise of the rescission remedy. The Property no longer forms part of the estate of the Bridging Funds to be distributed amongst its creditors, granting Potential Québec Rescission Claimants a de facto or functional priority that the court should direct the Receiver to respect.

Responses of the Receiver and Representative Counsel to the Bridging Unitholders

[92] The Receiver responded to the following arguments raised by the Unitholders:

(a) The Misrepresentation Claimants have a right of rescission and therefore such Claimants are no longer Unitholders, are no longer bound by the applicable constating documents, and the amounts invested by such Claimants do not form part of the Bridging Estate;

(b) The Potential Redemption Claims constitute “enforceable liabilities” that rank in priority to General Unitholder Claims; and

(c) The QSA applies to the issues on the motion.

[93] The Receiver argues that there is no priority or trust for Statutory Rescission Claimants. The Misrepresentation Claimants attempt to overcome the unequivocal language in the constating documents that no Unitholder shall be entitled to any preference, priority or right in any circumstance over any other Unitholder.

[94] The Receiver contends that the arguments raised by Misrepresentation Claimants is contrary to the leading case law which provides that:

(i) rescission rights on the basis of misrepresentation cannot be exercised once a company is insolvent or winding up; and

(ii) regardless of whether rescission rights can be exercised, the claims derived from such rights are not afforded any priority.

[95] The Receiver argues that rescission rights cannot be exercised in a Receivership, citing well-established case law that rescission rights cannot be exercised in respect of an insolvent entity. The Receiver contends that rights that a stakeholder may have been entitled to prior to an insolvency can be lost or limited. (See: Blue Range Resource Corp. (Re), 76 Alta L.R. (3d) 338, 2000 ABQB 4 at para. 39.)

[96] In McCaskill v. Northwestern Trust Co., 1926 CanLII 57 (SCC), [1926] S.C.R. 412, the Supreme Court of Canada recognized that a claim of rescission for fraud or misrepresentation may be lost in the context of a winding up or to a change in circumstances, which makes it unjust to exercise such a right.

[97] In Blue Range, Romaine J. noted: “it is clear that, both in Canada and in the United Kingdom, once a company is insolvent, shareholders are not allowed to rescind their shares on the basis of misrepresentation.”

[98] The Receiver submits that the Rescission Claimants have not satisfied the requirements for a trust.

[99] Second, case law supports the conclusion that investors with statutory rescission rights are not entitled to any priority: See, for example, National Bank of Canada v. Merit Energy Ltd., 2001 ABQB 583, 294 Alta L.R. (3d) 166, at paras. 1 and 48 – 55. In the context of a receivership or a bankruptcy, the Alberta Court of King’s Bench held that the statutory rescission claims of investors under the Alberta Securities Act do not rank in priority to the claims of other investors. Rescission claims are fundamentally a right to recover investments and are not materially different from misrepresentation claims for damages.

[100] The Receiver also contends that there is no priority for its Redemption Claims.

[101] The core argument of the Redemption Claimants is that the applicable agreements created an “enforceable liability” pursuant to which Potential Redemption Claimants are required to be paid within 30 days of the applicable Valuation Date (i.e., the last business day of each calendar month as of which the NAV is calculated for the purposes of quantifying and paying out redemptions accepted by Bridging). This argument ignores the fact that the unfilled redemption requests were never completed or accepted and is not supported by the applicable agreements and leading case law.

[102] In this case, the Receiver argues that the unfilled redemption requests were never accepted or binding. The Receiver was appointed before any unfilled redemption requests were accepted, priced, contracted, and paid out.

[103] At paragraph 21 of the responding factum, the Receiver points out that the Trust Agreements provide that “notwithstanding any other provision herein … the manager has the sole discretion to accept or reject redemption requests and the manager intends to accept redemption request in circumstances where, in the view of the manager, it would not be prejudicial to the applicable fund to do so.” There are no circumstances under the applicable constating documents in which the manager is required to accept redemption requests with respect to the Bridging Funds that are structured as trusts. There is an identical provision in the Limited Partnership Agreement for MMF LP.

[104] Accordingly, even if the Appointment Order and the Temporary Order were not granted, the unfilled redemption requests were not required to be accepted or completed.

[105] As of April 30, 2021, net contracted but unpaid redemptions are listed at zero dollars. This reflects the reality that no redemption requests were accepted or completed at that time and therefore no corresponding adjustment to the “liabilities” side of the balance sheet was required to account for future cash outflows for completed redemptions.

[106] The fact that a cash adjustment for “redemptions payable” appears in Bridging’s financial statements is of little relevance to the question of priority.

[107] More importantly even if the unfilled redemption request could have been accepted (or were accepted in fact), this does not create any priority or differentiate the Potential Redemption Claims from any other Unitholder claim.

[108] Any request or demand for payment (such as a redemption request) even if accepted or binding, does not have the effect of transforming the legal rights of the parties and creating a priority when none otherwise exists.

[109] The Receiver also argues that the QSA does not apply. Québec claimants assert that the QSA applies to the priority issue as it relates to the Potential Statutory Rescission Claims. This is incorrect; the Receiver submits that the QSA does not apply in the circumstances and the applicability of the QSA has no impact on the question of priority in any event.

[110] The Receiver points out that the Unitholders resident in Québec were granted contractual rescission rights because the rescission rights available under the QSA are limited to investors who purchased pursuant to a prospectus, an offering memorandum prescribed by regulation, and the other document authorized by the Québec securities regulatory authority in lieu of a prospectus. The offering memorandum prescribed by regulation contemplated by the QSA must meet specific disclosure and other requirements under “offering memorandum” prospectus exemption pursuant to National Instrument 45-106 Prospectus Exemptions. The QSA does not provide rescission rights to Québec investors who purchased securities under a non-prescribed form of offering memorandum, pursuant to other prospectus exemptions under National Instrument 45-106, including the “accredited investor” or “minimum amount investment” exemptions (such as the offering memorandum for Bridging Funds).

[111] Accordingly, the submissions of the Québec Claimants are built upon the incorrect premise that the QSA applies and should be disregarded.

[112] Even if the QSA is applied, the analysis with respect to priority does not change. The rights available under the QSA are substantially similar to those provided for under the OSA.

[113] The reply factum of Representative Counsel for the Bridging Unitholders addresses the following issues:

(a) No party has a response to the fact that the Agreed Statement of Facts provides that the Bridging Funds are insolvent and therefore the application of the pari passu principle is required.

(b) The holders of Potential Priority Claims have confused the validity or enforcement of their claims with the issue of whether such a claim would have a priority. No basis for a priority has been demonstrated.

(c) Contrary to the position of the holders of Potential Redemption Claims, a valid contractual claim does not have priority over all other valid claims.

(d) The statutory right to rescission does not equate to statutory priority.

(e) There is no trust created as a result of the statutory right to rescission.

(f) Contrary to the position of the Rescission Claimants, they are still Unitholders subject to the applicable Agreements. In any event, pari passu would govern even if they did not.

(g) Contrary to the position of Québec Representative Counsel, it is the law of Ontario that determines priorities of claims against Bridging regardless of the province of residence of such claimants.

[114] Representative Counsel submits that having a valid and enforceable claim does not mean that there is somehow a “de facto priority” over other valid and enforceable claims. Being enforceable is not necessarily the equivalent to being secured or the equivalent of being subject to a trust.

[115] Counsel also submits a statutory right of rescission is not the same as a statutory priority. This confuses the validity of a right with the statutory priority for that right. Counsel does not suggest that the statutory right of rescission will not be respected, or that it is not valid or enforceable, in the sense that the quantum of such claims will be taken into account in distribution on a pro rata basis. Rather, the question is whether the statutory right enjoys a statutory priority. There is no indication in any of the relevant legislation that such priority exists, nor can the holders of Potential Statutory Rescission Claims point to any such language. There is no indication that the provincial Securities Acts oust any of the applicable legal principles, including the application of the pari passu rule, let alone clear language that effect.

[116] Representative Counsel also argue that a right to statutory rescission does not create a trust. The holders of Statutory Rescission Claims baldly assert that recession is a remedy requiring the imposition of a constructive trust. However, they have not satisfied the requisite elements for constructive trust, nor demonstrated how a statutory right can create a trust with any language in the statute suggesting one exists.

[117] Representative Counsel also submits that the fact that rights have become vested and enforceable – such as the statutory right to rescission – does not mean that they become tantamount to a trust. There must be some special reason to grant the holders of Potential Statutory Rescission Claims a constructive trust which essentially makes these claimants a secured creditor (which is wholly not established on the Agreed Statement of Facts).

[118] Notably, the consideration analysis of whether a constructive trust is the appropriate remedy is whether the claimant reasonably expected to obtain an actual proprietary interest as opposed to monetary relief. Given that none of the documentation or applicable legislation indicates that a proprietary interest would result if a Unitholder has a Potential Statutory Rescission Claim, the Receiver submits there is no basis on which such a trust would be consistent with their reasonable expectations.

[119] Finally, the applicability of Quebec law is irrelevant to the issue at hand, as the law applicable to the issue of proving is distinct from that applicable to the issue of validity to the claim. Counsel submits that the issue of priority can only be governed by (i) lex fori – Ontario and (ii) the law of the Agreements – Ontario – as these Agreements set out the agreed upon rights and entitlements vis-à-vis each other. As such, Quebec law is not relevant to the issue before the court to determine priority. Further, the consideration of Quebec law would not change the outcome.

[120] Counsel stresses that with respect to Potential Quebec Redemption Claims, Quebec Representative Counsel concedes that such claims are governed by Ontario law.

[121] With respect to Potential Quebec Statutory Rescission Claims, Quebec Representative Counsel confuses the enforcement or validity of such claims with whether or not such claims have a priority. Representative Counsel stresses that no one is suggesting that the claims of Quebec Unitholders will be disregarded; the issue is whether those claims should be granted priority. Issues of distribution and allocation are not before the court at this time. Even if Quebec law were to apply on this motion, no priority has been demonstrated. It does not create a priority

Analysis

[122] These proceedings were commenced and to this date remain under the OSA.

[123] The initial endorsement of Hainey J. states that the Appointment Order is in the best interests of the investors and will further the due administration of Ontario securities law.

[124] Unlike the BIA, and the Companies’ Creditors Arrangement Act (“CCAA”), receivership proceedings under the OSA do not have a recognized or defined scheme of distribution.

[125] The issues to be determined on this motion relate to the relative priority positions of Unitholders, specifically whether the claims of Redemption Claimants and Rescission Claimants have priority over General Unitholders.

[126] Redemption Claimants are of the view that they are contractually entitled to receive a cash payment for their units based on the NAV as of the applicable Valuation Date.

[127] Misrepresentation Claimants are of the view that they are to receive a refund of the amount of their investment less any distributions made to them.

[128] The claims of both the Redemption Claimants and the Misrepresentation Claimants are connected to their respective investments.

[129] There is scant jurisprudence on receiverships under securities legislation.

[130] There is case law addressing the issue as to whether investors are creditors or equity holders – but that is not an issue on the motion, and the application of such caselaw on this motion must be closely scrutinized.

Redemption Claimants

[131] At the time of the Appointment Order, certain Unitholders had provided Notice of Intention to Redeem Units.

[132] These Unitholders are separated into two groups.

[133] The first group is referenced at paragraphs 55 and 56 of the Agreed Statement of Facts. This group had accepted redemptions with a Valuation Date of March 31, 2021, and a corresponding settlement date of no later than April 30, 2021, as a result of a waived notice period, or redemption requests from BPDI or FERN, which were processed and paid in full to those Unitholders on April 30, 2021. Those redemptions for the Bridging Funds were settled prior to the Appointment Order being granted.

[134] These redemptions were paid based on a NAV calculation made prior to the Appointment Order.

[135] The second group is made up of Unitholders who, at the time the Appointment Order was granted, had provided Notice of Intention to Redeem, but redemption payments had not been issued by Bridging. There is no evidence that funds had been set aside for these Unitholders.

[136] The core argument of this group of Redemption Claimants is that the applicable agreements created an “enforceable liability” pursuant to which Potential Redemption Claimants are required to be paid within 30 days of the applicable Valuation Date.

[137] The fatal problem with this argument is that the redemption requests of these Redemption Claimants had not been completed.

[138] The Receiver argues that the unfiled redemption requests were never accepted nor binding. The Appointment Order was granted before any of these redemption requests were accepted, priced, or contracted, or paid out.

[139] I also note that the Trust Agreements provide, as noted in para. 21 of the Responding Factum of the Receiver:

“ … the Manager has the sole discretion to accept or reject redemption requests”

[140] With respect to Limited Partnerships, the response of the Receiver is set out at para. 22 of the Responding Factum. The Limited Partnership Agreement for MMF LP contains the identical provisions to those contained in the Trust Agreements. The Limited Partnership Agreements for BIF LP and BPDI LP are similar and give the Manager broad discretion to accept or reject redemption requests.

[141] Accordingly, there are no circumstances under the applicable documents in which the Manager is required to accept redemption requests with respect to the Bridging Funds.

[142] Thus, on April 30, 2021, net contracted but unpaid redemption requests are listed at zero dollars. As noted by the Receiver, this reflects the reality that no redemption requests were accepted or completed at the time the Appointment Order was granted. Furthermore, there was no corresponding adjustment to the “liabilities” side of the balance sheet to account for future cashflows for completed transactions.

[143] The foregoing reflects the reality of the situation as it existed at the time the Appointment Order was granted. The Unitholders may have thought otherwise, but that does not impact the legal analysis. In administering the affairs of Bridging, the Receiver has to take into account the manner in which the Bridging business operations were actually conducted (See: Cash Store Financial Services (Re), 2014 ONSC 4326 at paras. 3 – 6, 122, aff’d 2014 ONCA 834).

[144] In arguing for priority status over General Unitholders, the Potential Redemption Claimants seek an outcome that in essence requires the Receiver to make a retroactive adjustment to the records of Bridging, so as to complete redemption requests after the fact.

[145] The Unitholders may have claims against Bridging based on breach of contract, but that does not impact on the question before the court, namely whether they are entitled to priority over the General Unitholders. In my view, in order to achieve priority status, the redemption process must have been fully completed. In this case, it was not.

[146] I have concluded that the Redemption Claimants are not entitled to priority treatment based on incomplete redemption requests. I recognize that this result may be perceived as providing a windfall to Unitholders where redemption requests were completed shortly before the granting of the Appointment Order. The timing of these requests turned out to be most fortunate for these Unitholders as their return was based on a NAV calculation shortly before the receivership proceedings. It goes without saying that this NAV calculation is substantially different from the estimated realization provided by the Receiver.

Misrepresentation Claimants

[147] The position of Misrepresentation Claimants fundamentally differs from Redemption Claimants and from General Unitholders.

[148] Paragraph 4 of the factum submitted by Misrepresentation Claimants reads as follows:

The nature of rescission as a remedy creates a de facto priority. Misrepresentation Claimants may annul their contracts, are not bound by their terms, and have a proprietary right to a return of their funds. Since the contract is annulled, its terms do not govern distributions. Since Misrepresentation Claimants who elect to rescind are no longer unitholders, the provisions of Ontario’s Limited Partnership Act do not apply.

[149] Counsel to the Misrepresentation Claimants submits that in a receivership under the Securities Act, the Court should recognize and give effect to the statutory rights of unitholders under securities legislation. In the circumstances of this case, and in particular in the context of the question posed on this motion, I agree with this submission and have concluded that the rights of Misrepresentation Claimants have priority over the claims of General Unitholders.

[150] The Misrepresentation Claimants have statutory remedies, and in some provinces a contractual right.

[151] The statutory remedy is set out in s. 130.1(1) of the OSA, where an offering memorandum contains a misrepresentation, a purchaser has (a) certain rights to pursue damages; or (b) a right of rescission. Reliance on the misrepresentation does not have to be shown.

[152] Certain Unitholders who otherwise may have access to these statutory rescission rights were granted contractual rights under the offering memorandum of the Bridging Funds, which rights are equivalent to the rights conferred by the OSA. Counsel submits that these Misrepresentation Claimants are identically situated to those claimants who have purely statutory rights. I agree.

[153] The claim of the Misrepresentation Claimants is for the amount of their investments less amounts distributed.

[154] It has been established that the nature of rescission as a remedy creates a de facto priority.

[155] In arriving at this conclusion, I have taken into account that statutory rescission is a remedy conferred by the OSA and its application is non-discretionary.

[156] I have not been persuaded by the arguments presented by the Receiver and Representative Counsel.

[157] The Receiver takes the position that rescission rights cannot be exercised in a receivership, and that leading case law recognizes that, in the context of an insolvency or winding-up, a corporation may or may not be able to satisfy the claims of all stakeholders, thus changing the entire complexion of a corporation. Counsel cites Northwestern. Northwestern arose in the liquidation of the Northwestern Trust Co., which was being wound-up under the provisions of the federal insolvency Winding-up Act. The Supreme Court recognized that a claim for rescission for misrepresentation may be lost in the context of a winding-up. The decision in Northwestern was followed by Romaine J. in Blue Range. Blue Range had commenced proceedings under the federal insolvency statute, the CCAA. At issue in Blue Range was an application brought by Big Bear Exploration Ltd. (“Big Bear”) against Blue Range Resource Corporation. Big Bear was the sole shareholder of Blue Range and submitted that its claim should rank equally with claims of unsecured creditors.

[158] Counsel for the Receiver references the statement of Romaine J. at para. 37:

It is clear, both in Canada and in the United Kingdom, once a company is insolvent, shareholders are not allowed to rescind their shares on the basis of misrepresentation.

[159] The Northwestern and Blue Range cases are both distinguishable from the case at bar.

[160] Firstly, both Northwestern and Blue Range were being administered under federal insolvency law.

[161] The Bridging receivership is being administered under the OSA. The federal insolvency regimes have not been engaged. This is an important distinction.

[162] Insolvency proceedings under the BIA or CCAA provide for treatment of equity claims in a specified code. Equity claimants are subordinated to debtor/creditor claims.

[163] In Northwestern, the winding-up order altered relations, not only between the creditors and the shareholders, but also among the shareholders inter se. The issue before the court on this motion does not address creditor issues. It asks for a determination on priority issues affecting Unitholders.

[164] In Blue Range, the issue involved the status of rescission claimants who unsuccessfully sought to be recognized as creditors. It should be noted that the decision in Blue Range predated the statutory amendment that subordinated equity claims to creditor claims. This is not the issue being determined on this motion.

[165] Here, the issue for determination is that of priority as between investors, specifically, whether Redemption Claimants and/or Rescission Claimants have priority over General Unitholders with respect to the distribution of proceeds of the Bridging Funds.

[166] This issue has to be determined on the documentary evidence and the governing statutes.

[167] The relevant provision of the OSA is s. 130.1(1). It provides the remedy of rescission for certain unitholders. The Offering Memorandum provides for the same relief for certain unitholders in British Columbia, Alberta and Quebec.

[168] The Misrepresentation Claimants are entitled to pursue this remedy and there is no aspect of these receivership proceedings that extinguishes the rights of Misrepresentation Claimants. As stated by counsel to the Potential Rescission Claimants, the nature of rescission creates a de facto priority. Further, unlike the Potential Redemption Claimants, neither the Misrepresentation Claimants nor Bridging need to take any post-receivership steps to finalize the claims of the Misrepresentation Claimants. The claims are established through limitation time periods. The factual matrix is complete.

[169] The Misrepresentation Claimants, upon exercising their statutory or contractual rescission rights, cease to be Unitholders. They have different legal rights than Unitholders. They have a different relationship to the assets.

[170] The remedy for the Misrepresentation Claimants must be meaningful. The projections of realization provided by the Receiver states that, in time, there will be sufficient funds to satisfy the claims of the Potential Rescission Claimants.

[171] In these circumstances, I am satisfied that it is appropriate to impose a constructive trust.

[172] The purpose of a constructive trust is to prevent unjust enrichment in whatever circumstances it occurs.

[173] Representative Counsel to the Bridging Unitholders set out the four conditions that must be satisfied for the imposition of a constructive trust:

(1) The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in its hands;

(2) The assets in the hands of the defendant must be shown to have resulted from deemed or actual ongoing activities of the defendant in breach of its equitable obligation to the plaintiff;

(3) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties; and

(4) There must be no factors which would render the imposition of a constructive trust unjust in all of the circumstances of the case.

(See: Soulos v. Korkontzilas, 1997 CanLII 346 (SCC), [1997] 2 SCR 217 at para. 45)

[174] Representative Counsel to the Bridging Unitholders submits that if a constructive trust is justified, it applies to all Unitholders, not just the Potential Priority Claims, and there is no equitable or legal basis to suggest otherwise.

[175] I disagree. In my view, the imposition of a constructive trust only applies to the Misrepresentation Claimants.

[176] The legal rights of the Misrepresentation Claimants are different than Potential Redemption Claimants and from General Unitholders.

[177] The rights of the Misrepresentation Claimants flow directly from s. 130.1(1) of the OSA or from contract. The Potential Redemption Claimants and General Unitholders do not have such rights.

[178] As for the Soulos conditions, in my view, they have been satisfied.

(1) Bridging has an obligation not to make a misrepresentation.

(2) The assets provided by the Misrepresentation Claimants to Bridging resulted from the activities of Bridging.

(3) The Misrepresentation Claimants can show a legitimate reason for seeking the remedy. The remedy is provided either by statute or contact.

(4) As noted above, the remedy for the Misrepresentation Claimants must be meaningful. It is both just and equitable to impose a constructive trust.

[179] In view of the fungible nature of the investments made by all investors, there is no meaningful alternative to the imposition of a constructive trust.

Quebec Claimants

[180] A factum was also filed by Court-Appointed Representative Counsel.

[181] At paragraph 3 of this factum, counsel acknowledges that Potential Quebec Redemption Claims are contractual in nature and, as such, are also governed by Ontario law, which is not supplanted or supplemented by mandatory provisions of Quebec law. I have determined that Potential Redemption Claimants do not have priority over General Unitholders and the result is unchanged for Quebec Claimants.

[182] With respect to Potential Quebec Statutory Rescission Claims, counsel submits at paragraph 5 of their factum that there is no obstacle to allowing Potential Quebec Statutory Rescission Claims. I have determined that the Misrepresentation Claimants outside of Quebec have priority over General Unitholders. The same outcome should be afforded to Quebec Claimants either under Quebec law or under Ontario law. Given the identical outcome, it is not necessary to determine which law applies. The question of individual claims is not addressed in this motion. This can be addressed, if necessary, in a claims process.

Disposition

[183] The Potential Redemption Claims are not entitled to any priority over General Unitholder Claims with respect to the distribution of proceeds of the Bridging Funds.

[184] The Potential Statutory Rescission Claims are entitled to priority over General Unitholder Claims with respect to the distribution of proceeds of the Bridging Funds.

[185] The Potential Redemption Claimants and the General Unitholder Claims shall rank pari passu with respect to the distribution of proceeds of the Bridging Funds.

[186] I thank all counsel for their detailed and excellent submissions.

Chief Justice G.B. Morawetz

Date: April 12, 2023

SCHEDULE “A”

Agreed Statement of Facts for Unitholder Priority Motion

A. Defined Terms

1. Unless otherwise defined herein, each capitalized term has the meaning given to it in Appendix “A”. Unless otherwise specified, all amounts are expressed in Canadian Dollars.

B. The Issue to be Decided at the Unitholder Priority Motion

2. The issue to be decided at the Unitholder Priority Motion is whether the holders of valid Potential Statutory Rescission Claims and/or Potential Redemption Claims (collectively referred to herein as “Potential Priority Claims”) are entitled to any priority over General Unitholder Claims with respect to the distribution of proceeds of the Bridging Funds.

3. The purpose of the Unitholder Priority Motion is not to determine which Unitholders have Potential Priority Claims, the validity of any such claims, or to determine the quantum of any claims including General Unitholder Claims. The determination of such claims will be made at a later date and will depend on, among other things, factual circumstances that may be unique to each Unitholder and the Court’s determination of the Unitholder Priority Motion. Further, the purpose of the Unitholder Priority Motion is not to determine whether the holders of Potential Statutory Rescission Claims and/or Potential Redemption Claims are entitled to any priority inter se.

4. Unitholders who have Potential Priority Claims have such claims against the respective Bridging Funds, not as against other Unitholders.

5. The parties to the Unitholder Priority Motion agree that, for the purposes of the Unitholder Priority Motion only (and not for any other purpose, including the determination of the claims of any individual Unitholders) the motion is to be heard on the assumption that Unitholders with Potential Priority Claims will be able to prove such claims and that no defences will apply, irrespective of which law applies to the claims.

6. Each of the Receiver, Representative Counsel, Misrepresentation Representative Counsel, Redemption Representative Counsel and Quebec Representative Counsel have agreed that the facts as set out herein will form the primary factual basis for the Unitholder Priority Motion. Each of the foregoing parties have also agreed that the inclusion of any facts in this Agreed Statement of Facts shall not be considered an admission by any party that such facts are relevant to the determination of the Unitholder Priority Motion. The parties intend that the Unitholder Priority Motion will be decided only on the basis of this Agreed Statement of Facts unless the Court permits such other evidence to be admitted. If the introduction of any additional evidence should be required, the parties commit to use their best efforts and to negotiate in good faith the introduction of same on consent by way of an Amended and/or Supplemental Agreed Statement of Facts and to avoid any procedural unfairness.

C. Background on Bridging

7. BFI is a federally incorporated company, domiciled in Ontario. BFI was founded in 2013 as a privately held investment management firm that, prior to the appointment of the Receiver, offered alternative investment options to retail and institutional investors through its investment vehicles (referred to collectively herein as the “Bridging Funds”). Bridging raised capital from investors for the purpose of making private debt loans to third-party borrowers. The Bridging Funds (other than BIIF, FERN, BIF RSP, MMF RSP, and BPDI RSP, which were organized as unincorporated investment trusts pursuant to Ontario law) originated loans through limited partnerships established pursuant to the Limited Partnerships Act (Ontario), each of which is managed by an Ontario incorporated general partner owned by BFI. Prior to the appointment of the Receiver, BFI acted as manager of each of the Bridging Funds and, in return, BFI collected a 0.5% to 2% management fee (depending on the applicable Bridging Fund and the class of Units of such Bridging Fund) based on the NAV of the Bridging Funds, payable on a monthly basis, plus an annual incentive allocation of net income upon generating returns for the respective Bridging Funds in respect of the applicable fiscal year above a specified hurdle rate. A copy of the Bridging organizational chart is attached as Appendix “B”.

8. Investors participated through the purchase of units (“Units”) of the Bridging Funds, being either limited partnership or trust units depending on the Bridging Fund invested into. Based upon information provided to the Receiver by Bridging management, there are an aggregate of approximately 25,900 Unitholders across the 13 Bridging Funds. Many Unitholders hold Units in more than one Bridging Fund.

9. On April 30, 2021 PwC was appointed by order of the Court (the “Appointment Order”) as receiver and manager (in such capacities, the “Receiver”), without security, of all of the assets, undertakings, and properties of each of BFI, BIF, MMF, SBF GP, BF GP, BIF RSP, MMF RSP, BPD LP, BRLF, SMA 1, BIF LP, Bridging MJ GP Inc., BIIF and FERN (collectively, the “Initial Respondents”).[1]

10. By order of the Court dated May 3, 2021 (the “Additional Appointment Order” and together with the Appointment Order, the “Appointment Orders”), PwC was appointed as receiver and manager, without security, of all of the assets, undertakings, and properties of each of SMA 2, Bridging SMA 2 GP Inc., and BPDI RSP (collectively, the “Additional Bridging Entities” and together with the Initial Respondents, the “Respondents” or “Bridging”).

11. Pursuant to an order of the Court dated May 14, 2021, the Receiver’s appointment in respect of the property of each of the Respondents in accordance with the terms of the Appointment Orders shall continue until further order of the Court.

D. The Appointment of Representative Counsel

12. Pursuant to the direction of Chief Justice Morawetz dated September 27, 2021 and an order of the Court dated October 14, 2021, Bennett Jones LLP was appointed as Representative Counsel for the Unitholders.

13. The terms of the appointment of Representative Counsel were amended pursuant to the amended and restated order of the Court dated December 22, 2021.

14. Pursuant to the Priority Motion Representative Counsel Order, Chief Justice Morawetz subsequently appointed:

(a) Miller Thomson LLP as Misrepresentation Representative Counsel;

(b) Aird & Berlis LLP as Redemption Representative Counsel; and

(c) Woods LLP as Quebec Representative Counsel.

15. Each of Misrepresentation Representative Counsel, Redemption Representative Counsel and Quebec Representative Counsel were appointed solely with respect to the issues to be determined in the Unitholder Priority Motion and for no other purpose.

E. The Bridging Funds

16. As at the date of the appointment of the Receiver, the Bridging Funds that were marketed to investors included:

(a) the following limited partnership fund offerings:

(i) BIF;

(ii) MMF;

(iii) BPDI;

(iv) SMA 1; and

(v) SMA 2.

(b) the following RSP fund offerings:

(i) BIF RSP (and together with BIF, the “Income Fund”);

(ii) MMF RSP (and together with MMF, the “MM Fund”); and

(iii) BPDI RSP.

(c) the following investment trust fund offerings:

(i) BIIF; and

(ii) FERN.

17. BIF RSP, MMF RSP and BPDI RSP are structured as investment trusts pursuant to Ontario law and hold a specific class of Units in BIF, MMF and BPDI, respectively. The Units of BIF RSP, MMF RSP and BPDI RSP are “qualified investments” pursuant to the Income Tax Act (Canada), allowing Unitholders to hold such Units in registered accounts for tax purposes and indirectly invest in BIF, MMF and BPDI, respectively, through such accounts.

18. The Bridging Funds also included BRLF, of which the only Unitholder listed in the books and records of Bridging is David Sharpe, and BIF LP, which was dissolved in August 2020. Although BRLF remains in existence, the Receiver understands its units were never marketed to investors.

19. The table below sets out the pre-Receivership AUM and the aggregate of Potential Statutory Rescission Claims and Potential Redemption Claims currently estimated by the Receiver in respect of each Bridging Fund marketed to investors. The Receiver has not yet attempted to estimate the quantum of General Unitholder Claims.

Reported NAV

of units

Estimated Value of Potential Statutory Rescission Claims

Estimated Value of Potential Redemption Claims

Fund

$millions

of units

of units

$millions

of units

$millions

Bridging Fern Alternative Credit Fund

39.29

365,627.00

11,256.59

0.69

100.89

0.01

Bridging Income Fund LP

1,018.99

10,016,866.00

1,188,221.28

122.03

969,162.12

96.38

Bridging Income Fund RSP

364.32

3,479,574.00

169,318.86

16.94

236,580.03

24.86

Bridging Indigenous Impact Fund

60.67

590,338.00

173,987.35

17.78

7,118.92

0.75

Bridging Mid-Market Debt Fund LP

505.63

4,960,691.00

302,422.98

31.11

817,194.40

82.85

Bridging Mid-Market Debt Fund RSP

135.95

1,348,969.00

89,362.51

9.06

135,703.30

13.80

Bridging Private Debt Institutional LP

71.06

612,884.00

35,941.00

3.62

1,724.26

0.18

Bridging Private Debt Institutional RSP Fund

8.88

88,583.00

12,023.25

1.20

93.86

0.01

Bridging SMA 1 LP

97.6

716,718.00

0.00

0.00

0.00

0.00

Bridging SMA 2 LP

163.9

1,630,000.00

0.00

0.00

0.00

0.00

Total

1,982,533.82

202.44

2,167,677.78

218.84

20. The table located at Appendix “C” sets out the Potential Statutory Rescission Claims and Potential Redemption Claims by the province or territory in which the Units were purchased.

21. The two largest Bridging Funds, both in terms of the number of Unitholders and AUM are the Income Fund and the MM Fund. As of December 31, 2020, the Income Fund reported net assets attributable to Unitholders of $1,018,993,258 and the MM Fund reported net assets attributable to Unitholders of $505,633,598. As of December 2020, BFI reported approximately $2.1 billion AUM. The Bridging Funds represent approximately $1.9 billion of BFI’s reported AUM.

22. With the exception of SMA 1 and SMA 2, Units in each of the Bridging Funds were sold pursuant to an offering memorandum. Copies of the offering memoranda pursuant to which Units in each of the Bridging Funds were offered, except for SMA 1 and SMA 2, are attached hereto in Appendix “D”.

23. Unitholders also subscribed to a limited partnership agreement or trust agreement in respect of the applicable Bridging Fund, depending on the structure of the Bridging Fund into which they invested. The limited partnership agreements and trust agreements in respect of each Bridging Fund are attached hereto in Appendix “E”. In addition, the versions of the Limited Partnership Agreements for BIF and MMF, as they existed prior to January 1, 2021 are attached hereto in Appendix “F”.

F. Subscriptions

24. Investors could request to purchase Units in a Bridging Fund at any time during any given month; however, the subscription would not be effective until the last business day of such month (a “Valuation Date”) and would be priced based on the NAV in respect of such Valuation Date, which was typically calculated by BFI approximately three to four weeks following the Valuation Date.

25. Pursuant to paragraph 9 of the Appointment Order, Bridging was ordered not to issue any new Units in any of the Bridging Funds or to redeem any of the existing Units in any of the Bridging Funds. In addition, on April 30, 2021, the Ontario Securities Commission issued the Temporary Order cease trading the securities of the Bridging Funds (other than SMA 2, BPDI RSP, and FERN).[2]

26. Subscriptions, as well as redemptions (discussed in more detail below), of Units could be requested by investors directly with BFI or by dealers or investment advisors on behalf of investors through Fundserv, a centralized platform which enabled the dealer/advisor network to buy, sell and transfer unitized investment funds on a standardized transactional network.

G. Distributions

27. Pursuant to the constating documents of the Bridging Funds, distributions were made to Unitholders on either a monthly or semi-annual basis, depending on the Bridging Fund. Distributions were automatically reinvested in additional Units of the same class of the applicable Bridging Fund at the NAV of such class on the date of distribution. In order for distributions to be received in cash, the Unitholder had to provide written notice to BFI.

28. Distributions were made based on the net income of the applicable Bridging Fund; however, the amount of any distributions could fluctuate on a month-over-month basis and there was no assurance that any distributions would be made in any period or in any particular amount.

29. For Unitholders who purchased their Units through a dealer/advisor on Fundserv, distributions in respect of such Units would also be reconciled through Fundserv.

30. Since the Date of Appointment, distributions have been suspended and no distributions will be made to Unitholders, either by way of reinvestment or cash payments, pending further order of the Court.

H. Redemptions

Redemption Process

31. The constating documents of the Bridging Funds generally provide that redemption of Units may occur upon formal notice by a Unitholder. The documents generally provide that redemptions were subject to a number of terms and conditions, including that BFI or the applicable general partner of the Bridging Fund, as applicable, had the sole discretion to accept or reject each redemption request.

32. Redemptions could only be made effective as of the applicable Valuation Date following the receipt of a redemption notice, which was generally defined to be the “Redemption Date” under the applicable constating documents. The required redemption notice period for the Bridging Funds was typically 30 days in advance of a Valuation Date. However, as described in further detail below, in December 2020, Bridging took steps to amend the limited partnership and trust agreements, as applicable, to increase the required notice period for redemptions from 30 to 90 days for each of BIF, BIF RSP, MMF, MMF RSP and BIIF (collectively, the “Amendments”).

33. The constating documents permitted the Bridging Funds to appoint a Fund Administrator to perform registrar and transfer agent services and distribution agent services and also to provide certain financial, record-keeping, reporting and administration services. The redemption procedures that were generally followed by the Fund Administrator are described in greater detail below. These redemption procedures were generally not specified or described in the Funds’ constating documents or offering memoranda. For greater certainty, as it concerns such procedures described herein, the Unitholders with Potential Redemption Claims do not accept that such procedures are determinative of when a requested redemption was accepted, became binding or was completed.

34. While the effective date of a duly requested and accepted redemption would be the applicable Valuation Date, as noted above, the redemption would not be priced or considered by the Fund Administrator to be accepted by Bridging and to be “contracted” until the NAV was calculated by BFI for such Valuation Date, which typically occurred approximately three to four weeks following such Valuation Date. Until that time, the Fund Administrator would record the redemption request in its internal records as “uncontracted”. The constating documents of the Bridging Funds provide that redemption proceeds must be paid out not later than 30 days following the applicable Valuation Date (60 days if such date was the Bridging Fund’s fiscal year-end).

35. For example, if the redemption notice period was 90 days, and a request for redemption was made on January 15, 2021, the applicable Valuation Date for the redemption would be April 30, 2021. The redemption would then be considered by the Fund Administrator to be accepted by Bridging and to be contracted in approximately the third or fourth week of May 2021, once the NAV as of the Redemption Date had been priced, at which time the redemption would be paid.

36. For a Unitholder that held their Units outside of the Fundserv system and submitted a redemption request directly with Bridging within the minimum required notice period before a Valuation Date and otherwise satisfied all other requirements for redemption, the redemption request would be contracted (through the issuance of a contract note by the Fund Administrator) and paid approximately three to four weeks following the Redemption Date (or otherwise within the 30 or 60 day period referred to above). A sample contract note issued by the Fund Administrator is attached hereto as Appendix “G”.

37. For a Unitholder that held their Units through the Fundserv system whose dealer or investment advisor submitted a redemption request on their behalf through Fundserv, assuming that the order was properly entered, including within the minimum required notice period before a Valuation Date, receipt of the redemption order would be acknowledged on Fundserv on the date it was submitted, which acknowledgement recorded the applicable Valuation Date. For example, a redemption order submitted through Fundserv on March 10, 2020 would subsequently reflect on Fundserv the following acknowledgement, visible to the dealer or investment advisor who submitted the redemption request: “03/10/20 ORDER ACKNOWLEDGED BY BRF 04/30/20” (see Appendix “H”). Thereafter, once the NAV as at the applicable Valuation Date had been determined approximately three to four weeks following such Valuation Date, and provided that Bridging had not rejected the redemption, the redemption would be considered by the Fund Administrator to be accepted and “contracted”, and electronic settlement files would be sent by the Fund Administrator to the relevant dealer or investment advisor. These electronic settlement files indicated that redemption proceeds were incoming to the dealer or investment advisor. The relevant dealer or investment advisor would then use the electronic settlement files to settle the redemption proceeds into the Unitholder’s account.

38. As indicated above, following the initial delivery of a redemption notice, the Fund Administrator would record the pending request and mark that request within its internal records as “uncontracted”. The Fund Administrator continued to record the request as “uncontracted” following the Redemption Date until the NAV had been determined and the price to be paid was calculated, and either a contract note was issued to the redeeming unitholder (in the case of a Unitholder holding outside of Fundserv) or electronic settlement files were sent to the redeeming unitholder’s dealer or investment advisor (in the case of a Unitholder holding through Fundserv). At that point, the Fund Administrator marked its internal records for the transaction as being “contracted”. The terms “contracted” and “uncontracted” do not appear in the constating documents.

Suspension of Redemptions

39. On April 13, 2020, BFI notified Unitholders that, in respect of the Income Fund and the MM Fund: (a) redemption requests placed between February 1, 2020 and April 13, 2020 were suspended, and (b) effective April 13, 2020, no further requests for redemptions would be accepted until the suspension had been terminated, which BFI anticipated being within 120 days. All redemption requests received prior to the April 13, 2020 suspension were subsequently accepted and paid out by September 30, 2020. A copy of the April 13, 2020 notice from BFI is attached hereto as Appendix “I”.

40. On August 17, 2020, BFI notified Unitholders (the “August 17, 2020 Notice”) that the Income Fund and the MM Fund would re-open for redemption requests on August 17, 2020, but that, given the uncertainty regarding the Covid-19 pandemic and its effect on financial markets, temporary limits on monthly redemptions would be imposed of $10 million in respect of the Income Fund and $5 million in respect of the MM Fund. A copy of the August 17, 2020 Notice is attached hereto as Appendix “J”.

41. For each of BIF and MMF, redemption requests that were received following the August 17, 2020 Notice, which were processed with a Valuation Date between August 31, 2020 and December 31, 2020, and paid between September 2020 through the end of January 2021, were generally pro-rated as follows after applying the redemption caps disclosed in the August 17, 2020 Notice:

42. The portion of any such redemption request that was not fully paid out because of the limits described in the August 17, 2020 Notice was treated by the Fund Administrator as having been cancelled and as being required to be re-submitted if the Unitholder wished to request that the balance be redeemed.

43. Following the August 17, 2020 Notice, Bridging and the Bridging Funds otherwise did not provide formal written notice of any suspension of redemptions at any time prior to the April 30, 2021 Appointment Order.

44. Notwithstanding that the August 17, 2020 Notice contemplated the redemption caps also being applied to BIF RSP and MMF RSP, the Fund Administrator has advised that all requested redemptions for BIF RSP and MMF RSP were accepted in full and paid over this period. This appears to have been done to avoid potentially compromising the RSP eligibility for Unitholders in BIF RSP and MMF RSP.

Amendment of Limited Partnership/Trust Agreements to Extend Redemption Notice Periods

45. A notice of meeting and management information circular dated November 16, 2020 was issued in respect of a meeting of Unitholders of each of BIF, BIF RSP, MMF, MMF RSP and BIIF to be held on December 18, 2020 (the “Unitholder Meetings”). As noted above, the purpose of the Unitholder Meetings was to, among other things, amend the applicable limited partnership or trust agreement for the relevant Bridging Fund to extend the notice period for redemptions from 30 to 90 days and, in the case of BIF RSP, MMF, MMF RSP and BIIF, to provide that the applicable general partner of the relevant Bridging Fund or BFI had the sole discretion to accept or reject redemption requests (such a provision already existed under the BIF limited partnership agreement). Copies of each notice of meeting and management information in respect of the Unitholder Meetings are attached hereto as Appendix “K”.

46. Excerpts of the amendment provisions of the limited partnership or trust agreements in respect of each of BIF, BIF RSP, MMF, MMF RSP and BIIF in effect at the time of the Unitholder Meetings are attached hereto as Appendix “L”. Under those provisions, the amendments sought required the approval of not less than 50% of all votes cast at the applicable Unitholder Meeting, except in respect of BIF and MMF, which each required not less than 66⅔% of all votes cast at the applicable meeting by all Unitholders of BIF and MMF, respectively.

47. Excerpts of the quorum requirement provisions for meetings of Unitholders in the limited partnership or trust agreements in respect of each of BIF, BIF RSP, MMF, MMF RSP and BIIF then in effect are attached hereto as Appendix “M”. In the case of BIF, quorum required two or more Unitholders of each class present in person or represented by proxy and, in each case, holding not less than 65% of the Units outstanding of each class. In the case of MMF, quorum required two or more Unitholders present in person or represented by proxy and, in each case, holding not less than 66^2/3% of the Units outstanding of each class.

48. Quorum was present at the Unitholder meetings held in respect of BIF RSP, MMF RSP and BIIF (which in each case had a significantly lower quorum requirement than BIF and MMF) and the amendments sought for those Bridging Funds were passed by the respective Unitholders on December 18, 2021. Quorum was not present in respect of either the BIF Unitholder meeting or the MMF Unitholder meeting held on December 18, 2020. The meetings of the Unitholders of BIF and MMF were adjourned to December 21, 2020 (the “Adjourned Meetings”).

49. The limited partnership agreements of each of BIF and MMF in effect at the time of the Unitholder Meetings contained a provision to address how a lack of quorum could be addressed. Such provision read as follows:

If a quorum is not present for a meeting of Limited Partners within 30 minutes after the time fixed for holding the meeting, the meeting, if convened pursuant to a written request, shall be cancelled, but otherwise shall be adjourned to such date as selected by the chair of the meeting. In the event that such meeting is adjourned for less than 30 days, the General Partner will not be required to give notice of the adjourned meeting to the Limited Partners other than by announcement made at the represented by proxy at such adjourned meeting will constitute a quorum for the transaction of any business that might have been dealt with at the original meeting in accordance with the notice calling same.

50. While there was an issue with the wording of the quorum provision cited above in the former limited partnership agreements for BIF and MMF, the offering memoranda for these funds stated that those Unitholders present at an adjourned meeting would constitute quorum. By way of example, BIF’s offering memorandum dated May 1, 2020 stated the following (MMF’s offering memorandum dated April 1, 2020 included the same disclosure):

If a quorum is not present at a meeting within 30 minutes after the time fixed for the meeting, the meeting, if convened pursuant to a written request of Limited Partners, shall be cancelled, but otherwise will be adjourned to such date as selected by the chair of the meeting. In the event that such meeting is adjourned for less than 30 days, the General Partner will not be required to give notice of the adjourned meeting to the Limited Partners other than by an announcement made at the initial meeting that is adjourned. The Limited Partners present at any adjourned meeting will constitute a quorum for purposes of considering any business that might have been dealt with at the original meeting.

51. The management information circulars sent to Unitholders of BIF and MMF in connection with the Unitholder Meetings contained the following language:

If within one-half hour from the time appointed for the Meeting a quorum is not present, then the Meeting shall stand adjourned to such date as selected by the Chair. In the event that such Meeting is adjourned for less than 30 days, the General Partner will not be required to give notice of the adjourned meeting to Unitholders other than by announcement made at the Meeting. At the adjourned meeting, the Unitholders then present in person or represented by proxy, whatever their number and the number of Units held by them, will form the necessary quorum. If the requisite quorum is not present for the Meeting, the Meeting will be adjourned to Monday, December 21, 2020 at 10:00 a.m. (Toronto time) via teleconference at (888)-241-0551.

52. The BIF limited partnership agreement was purportedly amended and restated as of January 1, 2021, to, among other things, add the words “meeting and the Limited Partners present in person or” to the quorum provision referred to above. This amendment was not expressly referred to in the materials for the BIF unitholder meeting held in December 2020.

53. Each of the BIF and MMF limited partnership agreements contained provisions providing the chair of a meeting of Unitholders with discretion to determine the rules and procedures of such meetings to the extent that the rules and procedures are not prescribed by the limited partnership agreement. Excerpts of such provisions are attached hereto as Appendix “N”.

54. The minutes of the Adjourned Meetings reflect that David Sharpe acted as Chairman of each Adjourned Meeting and, based on the scrutineer’s report on attendance for each Adjourned Meeting, determined that the requisite quorum was present and that the Adjourned Meeting was duly called and properly constituted for the transaction of business. The amendments sought were purportedly passed by the requisite number of BIF and MMF Unitholders at the Adjourned Meetings. The minutes of each Unitholder Meeting and Adjourned Meeting are attached hereto as Appendix “O”.

Waiver of Redemption Notice Period

55. The redemption notice period could be waived at BFI’s discretion, if it would not have been prejudicial to the Bridging Funds to do so. Between January 1, 2021 and April 30, 2021, 672 redemptions were effected from BIF, BIF RSP, MMF, MMF RSP and BIIF for an aggregate dollar value of approximately $29 million in respect of which the required 90 day notice period (assuming the Amendments were valid) was waived.

56. Accepted redemptions with a Valuation Date of March 31, 2021, and a corresponding settlement date of no later than April 30, 2021, as a result of a waived notice period, as described above, or redemption requests from BDPI or FERN, were processed and paid in full to those Unitholders on April 30, 2021. These redemptions for the Bridging Funds were settled prior to the Appointment Order being granted.

57. Redemptions that the Fund Administrator treated as accepted by Bridging and contracted (through the issuance of a contract note or sending of electronic settlement files) but not yet paid were listed as liabilities in the audited financial statements of the Bridging Funds. As the NAV for the applicable Valuation Date was calculated as part of contracting redemptions, the contracted and unpaid amount was known and accounted for as a “redemptions payable” liability. By way of example, the audited financial statements of BIF as at December 31, 2020 listed “redemptions payable” as a liability of $2,786,342. According to the books and records of Bridging, as at April 30, 2021, net contracted but unpaid redemptions were $0. Copies of the most recent annual audited, semi-annual audited, and internally prepared quarterly financial statements for BIF are attached hereto at Appendix “P”.

58. Pursuant to paragraph 9 of the Appointment Order, BFI and the Bridging Funds were ordered not to redeem any of the existing Units of Bridging Funds. In addition, on April 30, 2021, the Ontario Securities Commission issued the Temporary Order cease trading the securities of the Bridging Funds (other than SMA 2, BPDI RSP, and FERN). No redemptions have been accepted, completed or paid since these orders were issued.

I. Background to the Potential Priority Claims

Potential Statutory Rescission Claims

59. Pursuant to the Ontario Securities Act and the securities legislation of certain other Canadian provinces and territories, where an offering memorandum contains a misrepresentation, a purchaser who purchases a security offered under such offering memorandum during the period of distribution, without regard to whether the purchaser relied on the misrepresentation, has:

(a) certain rights to pursue damages; and/or

(b) a right of rescission with respect to the purchase of such security (together, “Statutory Misrepresentation Rights”).

60. A summary of the main statutory provisions applicable to misrepresentations made in an offering memorandum in each province and territory where the Bridging Funds were sold is contained in Appendix “Q”.

61. Unitholders who purchased securities in reliance upon a misrepresentation may, in certain circumstances, also have similar rights at common law. In addition, pursuant to the offering memoranda of the Bridging Funds, Unitholders in British Columbia and Quebec, or Unitholders in Alberta who purchased Units under an “accredited investor” exemption, are granted contractual rights of action for damages or rescission that are the same as, or similar to, the Statutory Misrepresentation Rights provided under the Ontario Securities Act.

62. Following the commencement of the Receivership Proceeding, certain Unitholders and their advisors advised the Receiver that they may wish to pursue and/or preserve certain rights of rescission or rights of action for damages that arose before the Date of Appointment as a result of misrepresentations contained in the Offering Memoranda.

63. The statutory limitation period under the Ontario Securities Act and the corresponding securities legislation in other provinces and territories in respect of rescission rights is generally 180 days after the date of the transaction that gave rise to the cause of action, after which time such Statutory Misrepresentation Rights are statute-barred. Additionally, under the securities legislation of the provinces and territories, in respect of damages rights, claims must generally be asserted by the earlier of a period ranging from 180 days to one year after the purchaser first had knowledge of the facts giving rise to the cause of action, or a period ranging from two to six years from the date of the transaction that gave rise to the cause of action, after which time such Statutory Misrepresentation Rights are statute-barred. A table setting out the applicable statutory limitation period in each province is set out in Appendix “R”.

64. To ensure that the ability of Unitholders to preserve any Misrepresentation Rights (as defined in the Tolling Order) was not prejudiced by the stay of proceedings and the passage of time, the Receiver sought the Tolling Order. Paragraph 13 of the Tolling Order, provides:

THIS COURT ORDERS that commencing on the Date of Appointment and continuing until the stay of proceedings imposed against the Respondents and the Property pursuant to the Appointment Orders is terminated (the “Tolling Termination Date”), all prescription, time or limitation periods (collectively, “Limitation Periods”), applicable to any Misrepresentation Rights (as defined herein), are suspended as of the Date of Appointment and will recommence running as of the Tolling Termination Date, and for greater certainty the time during which any Limitation Period is suspended pursuant to this Order shall not be included in the computation of any such Limitation Period. In this Order, “Misrepresentation Rights” means the rights of a purchaser of a security from any of the Respondents to (i) commence an action for damages against any of the Respondents; and (ii) exercise a right of rescission in connection with the purchase of a security from any of the Respondents, in each case whether such rights arise pursuant to: (a) section 130.1(1) of the Securities Act, or any corresponding or similar provisions under the securities legislation of any other Canadian province or territory; (b) any contractual rights granted by any of the Respondents to a purchaser of its securities that are the same or substantially the same as any such statutory rights for damages or rescission including, without limitation, in any offering memorandum pursuant to which securities of any of the Respondents were offered for sale; and/or (c) any common law or civil law rights or remedies that may otherwise be available to the purchaser of a security from any of the Respondents.

65. The Receiver currently estimates that approximately $202.4 million of Unitholder subscriptions were made within the 180-day period prior to the Date of Appointment. This reflects the total approximate amount of Potential Statutory Rescission Claims. The Receiver continues to analyze the data provided to it by the Fund Administrator and notes that the calculation of the amount of the Potential Statutory Rescission Claims may be revised.

66. Distributions were made to Unitholders from the Bridging Funds both before and during the 180-day period prior to the Date of Appointment (generally, the relevant period for Potential Statutory Rescission Claims). Copies of the fact sheets for certain of the Bridging Funds, setting out those funds’ reported financial performance as of March 31, 2021, including historical monthly or semi-annual distributions made to Unitholders, are included in Appendix “S”.

67. The Receiver has not assessed which Unitholders with Potential Statutory Rescission Claims have an actual right to rescission under applicable securities or contract laws, including as a result of having purchased a security offered by an offering memorandum containing a misrepresentation. Similarly, the Receiver has not yet assessed which Unitholders may have General Unitholder Claims against the Bridging Funds for damages arising from the operation of the Bridging Funds and/or potential misrepresentations made in any applicable materials, including the offering documents pursuant to which Units in Bridging Funds were acquired, or the quantum of such claims.

Potential Unfulfilled Redemption Claims

68. Certain Unitholders provided notice of their intention to redeem Units in the Bridging Funds prior to the Date of Appointment and the Temporary Order – some with Redemption Dates on April 30, 2021 (or before April 30, 2021 if the Amendments were invalid) and others with a Redemption Date after April 30, 2021. However, due to the Temporary Order and the Appointment Orders, such redemptions were not completed (the “Unfulfilled Redemption Requests”). Based on information received from the Fund Administrator, the Receiver estimates that there are Unfulfilled Redemption Requests for approximately 2.2 million Units (across all Bridging Funds) in the aggregate amount of approximately $218.8 million.

J. Cash held by the Receiver

69. Between January 1 and June 30, 2022, the Receiver has recovered cash of $138.4 million from Bridging’s assets. Based on the Receiver’s liquidation model (the “Liquidation Model”), which is detailed in its Tenth Report dated February 18, 2022, as updated based on information available as of June 30, 2022, estimated realizations from Bridging’s remaining assets, excluding litigation claims, are $153 million to $313 million for total projected realizations of $701 million to $861 million, including approximately $548 million of cash on hand, and before costs.

70. On July 19, 2022, the Court approved the Claims and Unitholdings Identification Procedure.[3] While such process has not been completed, it is expected (and assumed for the purposes of the Unitholder Priority Motion) that the proceeds of the assets of the Bridging Funds will be less than the aggregate of Potential Statutory Rescission Claims, Potential Redemption Claims, General Unitholder Claims and any additional claims determined in accordance with the Claims and Unitholdings Identification Procedure or otherwise.

71. If it is determined that Potential Statutory Rescission Claims and/or Potential Redemption Claims have priority over General Unitholder Claims, the impact on recoveries for Unitholders with General Unitholder Claims will be significant.

72. The following table sets out the potential impact on estimated recoveries if it is determined that Potential Statutory Rescission Claims and/or Potential Redemption Claims are entitled to priority over General Unitholder Claims, based on both the “low recovery” and “high recovery” scenarios in the Liquidation Model:

73. As noted above, based on the output of the Liquidation Model, as updated based on information available as of June 30, 2022, total projected realizations are estimated to be in the range of approximately $701 million to $880 million, representing a recovery range in the aggregate for all Bridging Funds of 34% to 41% of the March 31, 2021 NAV (being the last published NAV Bridging made available prior to the commencement of the Receivership Proceeding).

74. If it is determined that both Potential Statutory Rescission Claims and Potential Redemption Claims are entitled to priority, assuming the Unitholders with such claims will be able to prove such claims and obtain a full recovery, and subject to any valid claims proven in accordance with the Claims and Unitholdings Identification Procedure, it is estimated that the total net recoveries available for Unitholders who do not have such claims would be in the range of approximately $279 million to $459 million, representing a recovery range in the aggregate for all Bridging Funds of 17% to 26% of the March 31, 2021 NAV attributable to such Unitholders.[4]

APPENDIX “A” DEFINITIONS

“AUM” means assets under management;

“BFI” means Bridging Finance Inc.;

“BF GP” means Bridging Finance GP Inc.;

“BIF” means Bridging Income Fund LP;

“BIF LP” means Bridging Infrastructure Fund LP;

“BIF RSP” means Bridging Income RSP Fund;

“BIIF” means Bridging Indigenous Impact Fund;

“Bridging Funds” means collectively, BIF, MMF, BIF RSP, MMF RSP, BPDI, BRLF, SMA 1, BIF LP, BIIF, FERN, SMA 2 and BPDI RSP;

“BPDI” means Bridging Private Debt Institutional LP;

“BPDI RSP” means Bridging Private Debt Institutional RSP Fund;

“BRLF” means Bridging Real Estate Lending Fund LP;

“Claims and Unitholdings Identification Procedure” means the process approved by the Court pursuant to the Claims and Unitholdings Identification Procedure Order dated July 19, 2022, to verify certain information regarding the Units held by each Unitholder and to identify and quantify certain claims against Bridging;

“Court” means the Ontario Superior Court of Justice (Commercial List);

“Date of Appointment” means (i) in the case of each Bridging entity other than SMA 2, Bridging SMA 2 GP Inc. and BPDI RSP, April 30, 2021; and (ii) in the case of SMA 2, Bridging SMA 2 GP Inc., and BPDI RSP, May 3, 2021;

“FERN” means Bridging Fern Alternative Credit Fund;

“Fund Administrator” means SS&C, the administrator of the Bridging Funds;

“General Unitholder Claims” means the claims of Unitholders against the Bridging Funds which are not Potential Statutory Rescission Claims or Potential Redemption Claims;

“Misrepresentation Representative Counsel” means Miller Thomson LLP in its capacity as representative counsel for the those Unitholders located outside of the province of Quebec with Potential Statutory Rescission Claims, solely for the Unitholder Priority Motion;

“MMF” means Bridging Mid-Market Debt Fund LP;

“MMF RSP” means Bridging Mid-Market Debt RSP Fund;

“NAV” means net asset value;

“Ontario Securities Act” means the Securities Act (Ontario) R.S.O. 1990, c. S. 5, as amended;

“OSC” means the Ontario Securities Commission;

“Potential Statutory Rescission Claims” means the claim of a Unitholder against the relevant Bridging Fund pursuant to section 130.1(1)2 of the Ontario Securities Act and the corresponding securities legislation in other provinces and territories for amounts contributed by way of subscription into the Bridging Funds within the 180 day period (or 120 days, as applicable) prior to the Date of Appointment, based on misrepresentations made in the offering memoranda of the applicable Bridging Fund, without regard to whether a Unitholder relied on such misrepresentation, and includes the corresponding claims of Unitholders in British Columbia and Quebec, or Unitholders in Alberta who purchased Units under an “accredited investor” exemption, who were granted contractual rights of rescission by Bridging that are the same as those provided for under section 130.1(1)2 of the Ontario Securities Act;

“Potential Priority Claims” means the Potential Statutory Rescission Claims and the Potential Redemption Claims;

“Potential Redemption Claims” means the claims of Unitholders in connection with Unfulfilled Redemption Requests;

“Priority Motion Representative Counsel Order” means the Amended and Restated Order of the Court dated October 6, 2022, and any order amending or varying same, pursuant to which: (a) Miller Thomson LLP was appointed as Misrepresentation Representative Counsel; (b) Aird & Berlis LLP was appointed as Redemption Representative Counsel; and (c) Woods LLP was appointed as Quebec Representative Counsel;

“PwC” means PricewaterhouseCoopers Inc.;

“Quebec Representative Counsel” means Woods LLP in its capacity as representative counsel for those Unitholders resident in Quebec at the time of their subscription for a Bridging Fund with Potential Statutory Rescission Claims and/or Potential Redemption Claims, solely for the Unitholder Priority Motion.

“Redemption Representative Counsel” means Aird & Berlis LLP in its capacity as representative counsel for those Unitholders located outside of the province of Quebec with Potential Redemption Claims, solely for the Unitholder Priority Motion;

“Representative Counsel” means Bennett Jones LLP in its capacity as representative counsel to the Unitholders in the Bridging Funds;

“SBF GP” means SB Fund GP Inc.;

“SMA 1” means Bridging SMA 1 LP;

“SMA 2” means Bridging SMA 2 LP;

“Temporary Order” means the order issued by the OSC on April 30, 2021 cease trading the securities of the Bridging Funds (other than SMA 2, BPDI RSP, and FERN), as amended and/or extended from time to time;

“Tolling Order” means the Amended and Restated Tolling Order of the Court dated October 6, 2022, pursuant to which the applicable limitation periods with respect to any Misrepresentation Rights (as defined therein) during the Receivership Proceeding were tolled;

“Unfulfilled Redemption Requests” means the validly exercised requests of Unitholders against the relevant Bridging Fund of their intention to redeem Units in one or more of the Bridging Funds prior to the Date of Appointment, but which were not completed;

“Unitholders” means, collectively, the holders of Units in one or more of the Bridging Funds;

“Unitholder Priority Motion” means the motion before the Court to determine whether the holders of Potential Statutory Rescission Claims or Potential Redemption Claims are entitled to any priority over General Unitholder Claims with respect to the distribution of proceeds of the Bridging Funds;

[1] The Appointment Order was granted at approximately 4:00 p.m. on April 30, 2021.

[2] The Temporary Order was granted during regular business hours at some point prior to 3:15 p.m. on April 30, 2021.

[3] The Claims and Unitholdings Identification Procedure will not determine any claims of Unitholders derived from their beneficial ownership or other interest in the Bridging Funds, including any Potential Priority Claims and General Unitholder Claims. All such claims are “Excluded Claims” under the Claims and Unitholdings Identification Procedure.

[4] This calculation does not include the portion of the March 31, 2021 NAV attributable to Unitholders with Potential Statutory Rescission Claims and Potential Redemption Claims given that the foregoing example assumes such Unitholders will obtain a full recovery in priority to Unitholders who do not have such claims.