The co-founders of Gluskin Sheff + Associates Inc. are locked in an unsightly legal struggle with the company, claiming it owes them a staggering $185 million in post-retirement entitlements.
The Toronto-based investment firm revealed on Thursday that it is involved in a “private arbitration” with Ira Gluskin and Gerald Sheff. Gluskin is seeking a payment of $75 million, while Sheff is demanding $110 million.
By contrast, the organization said its obligations to the two founders count just $12.Two million for the most part. It vowed to contest the claim for $185 million and noted that “no supporting evidence” for that amount continues to be presented to date.
The roots of the dispute date back to 2009, when Gluskin Sheff struck an agreement with its namesake founders that will outlay cash for the rest of their lives after they stepped down from executive roles. The offer entitled each of them to some one time payment of $1.5 million (which was paid last year), along with fixed annual payments of $250,000. The organization described the agreement as effectively a defined benefit type of pension. Gluskin and Sheff were on the board once the pact was struck.
A key part of the agreement is it included a so-called “additional remedy.” When the founders felt the organization is breaching the offer, they could require the company to spend an amount equal to 90 per cent of the fair market price of the obligations.
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Gluskin and Sheff chose to exercise the “additional remedy” in an effort to collect the $185 million.
“Given the pension payments are for a fixed quantity of ($250,000 each year) for every of Mr. Gluskin and Mr. Sheff, plus other benefits, we discover it difficult to reconcile to the ($185 million) claimed,” CIBC World Markets analyst Paul Holden said inside a note.
On Thursday, an arbitrator – that has been working on a job for more than six months – ruled the co-founders validly issued notices for that “additional remedy.”
However, the arbitrator didn’t discover that the bonuses paid thus far have breached the agreement. The total amount that needs to be paid to Gluskin and Sheff will be determined in the second phase of the arbitration, that has not scheduled. The company vowed to assert legal positions at that stage which would “substantially reduce, or eliminate” the co-founders’ claims if they are accepted.
“It is simply the amount of payment that’s now under consideration,” Holden said, adding that a payment near to $185 million would be “financially challenging” for the company.
According to Gluskin Sheff, the arbitrator determined that the co-founders thought the organization “was in breach of its obligation to pay bonuses in 2014 to particular of the service-providers dedicated to them in a level corresponding to other similarly situated employees working.”
One source acquainted with the arbitration process asserted part of the dispute concentrates on “the right” of the two founders “to free management of your capital services [on the capital they invested in Gluskin Sheff funds] for the rest of their lives.” The organization, that charges clients a base fee along with a performance fee if certain rate of return objectives are obtained, includes a different view.
Gluskin and Sheff founded the cash management firm in 1984. It had been taken public in May 2006, at which time it had $3.75 billion of assets under management. For the reason that initial public offering, the organization sold 7.Two million subordinate voting shares at $18.50 a share. But the company received none of the proceeds. They all visited Gluskin and Sheff, who for many years remained the sole owners of the multiple voting shares. After the $133-million IPO, Sheff owned 5.Six million multiple voting shares while Gluskin owned 5.15 million.
In October 2013, the two, either directly or through charitable foundations, sold 6.4 million subordinate voting shares at $19 a share. When that secondary offering closed, all the company’s multiple voting shares were then converted into subordinate voting shares on the one-for-one basis.
Both Sheff and Gluskin retired from the board in 2013, but Gluskin continues to manage money for that company despite the legal battle.
A message left for Gluskin seeking a comment wasn’t returned.
pkoven@nationalpost.com
bcritchley@nationalpost.com
