Ontario court approves CAD27.2M Traynor Ridge payout

The Ontario Superior Court of Justice approved distribution of roughly CAD27.2 million in cash and securities recovered from the receivership of Traynor Ridge Capital Inc. The court endorsed a motion filed by receiver Ernst & Young Inc. and upheld the receiver’s decision to disallow a CAD25 million claim by Trillion Energy International.

The ruling recognized loss claims from brokerage firms including Jones Trading Canada, National Bank Financial, Ventum Financial and Virtu Canada. The court found the brokers suffered losses when trades remained unsettled after the funds were cease-traded and the brokers had to liquidate positions. The brokers held contractual indemnification rights against Traynor Ridge and related funds, the judge said.

Trillion Energy argued that trading by Traynor Ridge caused about CAD6 million in shareholder dilution and disrupted a planned public offering that would have raised roughly CAD19 million. The receiver disallowed the claim and the court agreed, finding no legal basis for the damages claim and concluding the funds did not owe a duty of care to the issuer. The judge wrote that “shareholders generally retain broad discretion over how and when they trade securities and are not required to act in the interests of the companies whose shares they own.” The court declined to create a new category of liability imposing obligations on shareholders toward issuers based on trading decisions.

The court dismissed allegations that the funds engaged in market manipulation intended to depress Trillion’s share price, saying there was no evidentiary basis for those claims. The judge also rejected the argument that alleged failures to meet insider reporting requirements gave the issuer a private right of action, noting that enforcement of disclosure rules is the role of securities regulators.

Ernst & Young reported approximately CAD27.2 million will be available for distribution to recognized creditors. Total claims filed against the estate amount to about CAD114.1 million, with broker-related claims representing the largest portion. The ruling authorizes the receiver to proceed with distributions to eligible claimants, which include the brokerage firms. Trillion Energy and certain fund investors who submitted redemption requests before the cease-trade but whose redemptions were not completed before receivership will not participate in the distribution.

Traynor Ridge was cease-traded by the Ontario Securities Commission in October 2023 after the death of founder and sole officer Chris Callahan. With no management in place, the firm entered receivership and EY was appointed to wind up assets, evaluate claims and distribute recovered funds.