Ontario Superior Court of Justice finds potential statutory rescission claims entitled to priority over general unitholder claims in Bridging Finance receivership proceedings

Counsel to a group of claimants

Lead by

Miller Thomson LLP (“Miller Thomson”) successfully represented unitholders with potential statutory rescission claims (“Potential Statutory Rescission Claimants Claimants”) in connection with a unitholder priority motion in court supervised receivership proceedings of Bridging Finance Inc.

The issues raised on the motion were novel and legally complex, involving a difficult priority dispute with respect to the future distribution of proceeds of the Bridging funds between distinct groups of unitholders. Potential Statutory Rescission Claimants hold investments totaling approximately $202.4 million.

In the decision, Chief Justice G.B. Morawetz determined that investors with potential statutory rescission claims – those who potentially bought funds when offering documents contained alleged misrepresentations during the statutorily prescribed period – are entitled to priority over general unitholder claims. Examining the nature of the statutory remedies available to investors pursuant to s 130.1 of the Ontario Securities Act (“OSA”), the Judge concluded that the right to rescission provided therein is a right to annul the contract and obtain a return of property. Therefore, a constructive trust should be imposed over the assets of an investment fund in favour of investors who meet the requirements of section 130.1 to make the statutory remedy meaningful.

This case represents a significant upset of established orthodoxies, providing clarity to investment funds, fund structures, fund managers and investment advisory as to the priority afforded to valid rescission claims under section 130.1 of OSA, within or outside of OSA receiverships.

Miller Thomson’s team of Asim Iqbal, Gavin Finlayson, Matthew Smith and Monica Faheim of our Restructuring & Insolvency and Commercial Litigation Groups represented the Potential Statutory Rescission Claimants in the proceedings.

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