Embattled ETF manager's unitholders now left as unsecured creditors

Firm fails to repay $4.7 million to its ETFs, unitholders left in potentially unprecedented situation

Embattled ETF manager's unitholders now left as unsecured creditors

Emerge Canada Inc. has failed to repay its outstanding receivables worth around $4.7 million to five of the fund manager’s ETFs before their termination last month. This leaves unitholders of the five ETFs as unsecured creditors.

According to a letter written by Emerge dated January 5th, they are still working towards making payment to unitholders, despite being unable to repay the outstanding receivables before the ETFs were terminated in December.

The ETFs in question are five of the six Emerge ARK ETFs — which offered a Canadian listed version of the ARK ETF strategies developed under celebrity investor Cathie Wood. The Emerge ARK Global Disruptive Innovation ETF (EARK) and the Emerge ARK Genomics & Biotech ETF (EAGB) have the largest outstanding receivables at $3.9 million and $590,000 respectively.

In April of 2023 Emerge ETFs were placed under a cease-trade order by the Ontario Securities Commission (OSC) after the ETF provider failed to file its annual audited financial statements. In May of 2023 the OSC suspended Emerge’s registration, citing the receivable owed to the five Emerge ARK ETFs which at the time had grown to $5.5 million.

By December 20th, Emerge told unitholders the receivable had been reduced by around $800,000 to $4.7 million. The receivable has been accruing interest at 2.5% per year since 2020.

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Emerge is currently the subject of a class action lawsuit by the firm Kalloghlian Myers LLP which notes that the receivable owed to the five ETFs was accrued as a pre-payment of management fees from the ETFs to Emerge Canada Inc. — meaning Emerge effectively borrowed from their own ETFs’ assets under management.

All five of the Emerge ETFs still owed a receivable were liquidated on October 31st of last year, and were terminated on December 29th following non-payment of the receivable. This has left the unitholders of those five ETFs as unsecured creditors of Emerge Canada Inc.