Britain-based litigation firm to fund legal action against Canadian advisers to bankrupt payday lender

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A Cash Store in Calgary, AB in 2010. A UK litigation finance firm will fund three $ 152.4 million lawsuits against the former auditor, legal advisor and financial advisor of The Cash Store Financial Services Inc., a lender on Canadian wage earner who filed for creditor protection in 2014.Chris Bolin Photography Inc./The Globe and Mail

A UK-based litigation finance company to fund three $ 152.4 million lawsuits against the former auditor, legal advisor and financial advisor of The Cash Store Financial Services Inc., a Canadian payday lender that has filed a claim. request for protection against creditors in 2014.

Augusta Ventures has agreed to fund lawsuits against KPMG LLP, Cassels Brock & Blackwell LLP and Canaccord Genuity Corp., which were brought by a group of Cash Store creditors in 2015 for professional negligence and breach of contract. KPMG was the auditor of Cash Store from 2002 to 2014, Cassels was its legal advisor during the same period and Canaccord is its former financial advisor.

The lawsuits allege the three companies failed to identify several red flags in Cash Store’s business model and help rectify issues, including “material inaccuracies” about how the company funded its operations. ready.

Bill Aziz, Cash Store’s litigation trustee, told The Globe and Mail that the lawsuits are intended to benefit creditors who “have losses because they have advanced debts to the company in circumstances where there was a fundamental misrepresentation ”of the Cash Store business model. Creditors, he said, owe more than $ 130 million, plus 12% annual interest.

Cash Store, which was based in Edmonton and had over 500 branches across Canada, offered high-interest loans to most low-income people with bad credit scores. The company’s missteps ultimately led an Ontario court to deny its license renewal and its shares were delisted from the Toronto Stock Exchange.

“It is alleged in these lawsuits that KPMG, Cassels Brock and Canaccord have caused more than $ 100 million in damages to Cash Store and its creditors,” said Mr. Aziz, president of BlueTree Advisors Inc., a consultancy firm. in corporate restructuring based in Oakville. , Have.

“The litigation funding that we have been able to obtain ensures that the litigation against the defendant[s] is fully funded and that we are able to see the case through so that they are held accountable for their misconduct. “

KPMG, Cassels and Canaccord filed respective statements of defense in response to the lawsuits, each party denying acting negligently and denying any breach of the homework at Cash Store.

“These multiple actions are a transparent attempt by disgruntled bondholders to hold reputable professional firms accountable for losses suffered by Cash Store as a result of the [company’s] mismanagement, ”KPMG wrote in its defense.

Canaccord wrote that it did not advise Cash Store on the acquisition of a portfolio of loans at issue in the statement and said the claims against the company were in any case prescribed by a limitation period.

Cassels wrote in his defense that he had never breached his obligations to Cash Store and that the law firm’s obligations were limited to his client, and not to the investors of Cash Store.

Mr Aziz did not disclose the full amount of Augusta’s funding, but said he would fund up to $ 8.5 million to pay for a defendant’s legal fees if plaintiffs lose a case and have to pay these fees.

“We have spent a considerable amount of time working with Augusta and her lawyers to make sure they understand what the problem is here,” Mr. Aziz said. “Augusta Ventures endorses this because they think it’s a good prospect for success.”

Litigation financing is relatively new to the Canadian legal system. Companies that fund lawsuits often get a share of the settlement if the plaintiff’s claim is successful. In proceedings under the Companies’ Creditors Arrangement Act, a possible litigation financing agreement must meet a number of conditions to be approved, such as how long the financing will be required and whether financing will improve creditors’ returns.

Founded in 2013, Augusta has funded more than 250 cases in Britain, the United States, Australia, Asia and Canada, providing more than $ 600 million in capital. Augusta’s Canadian office was established in 2019 and has an office in Toronto.

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