The Globe and Mail article Brokerwood Trading Inc., a Toronto-based company that sells stock trading services to investors, is planning to file for Chapter 11 bankruptcy protection.
The company filed for bankruptcy protection on Oct. 30, just two days after the Toronto Stock Exchange shuttered the company.
The filing comes after the Canadian Securities Administrators (CSAs) rejected Brokerwoods request for bankruptcy reorganization in July, citing insufficient evidence that the company’s business model was viable.
The CSAs said Broker Woods had failed to show it had adequate capital to sustain operations through 2018 and that the bankruptcy filing would be a “disastrous decision.”
“In light of these challenges, the CSAs determined that the Company was not able to maintain its business model for at least one more year and, therefore, that the CSA was unable to provide the Court with additional relief from the Company’s financial position,” the bankruptcy document says.
“Given the significant impact the Company is expected to have on the markets in the next six to eight months, the Company will be unable to continue operating.”
BrokerWood’s stock was trading near $10.65 on Monday morning, up roughly 27 per cent since late July.
But the stock has lost nearly $4 million since the CSBs decision.
“They’ve essentially made it impossible for me to be a shareholder,” Broker Wood co-founder Stephen Sussman said.
“It’s a huge loss.”
Broader Financial is a Toronto company that trades securities on the Toronto and Nova Scotia exchanges.
The Securities Industry and Financial Markets Association (SIFMA) issued a report in January estimating that the SIFMA would likely award Brokerawn Trading Inc a Chapter 11 reorganization, according to The Globe.
SIFMAs report noted that the filing was the first in the company and said that the “financial condition of the Company has deteriorated materially since its inception.”
In addition, the company said that it could be forced to close, which could result in “a significant loss to shareholders.”
Broderwood trading stock has plunged by more than half in the past year.
The stock fell almost $20 million on Monday, according the Toronto Star.
Brokerood trading stock is traded on the TSX and the CSE, and is owned by independent brokerage firm Independent Trading Company Limited.
The Canadian Securities Investor Protection Corporation (CSIC), the watchdog agency that regulates brokerage firms, said in a statement that it was “saddened” by the decision, but that it “reaffirms that it will continue to monitor the Company for any issues.”
Brokered, bankrupt or not, the Brokerland Trading stock is a safe haven for some investors.
“We’ve been able to diversify into a number of different sectors, such as technology and biotech, and have a solid track record of profitability,” Sussmann said.
But others have warned that the firm is losing money because it’s unable to operate.
“Brokerwood is not a very large company and has had a hard time operating and operating with any financial stability,” said Paul Stokes, CEO of the Toronto-Dominion Bank, which owns shares in Broker-hood Trading.
“Its business model is not sustainable.
It’s going to be very hard for them to keep doing this, and it’s not a good situation for them.”
“It is a shame that they can’t continue to do this,” he added.
Broader is owned and operated by the Toronto Investment Board, a publicly traded corporation.
The Toronto Investment Trust was also ordered to pay $4.4 million to Brokeright Trading, according The Globe, after a settlement was reached in May.
The fund has since transferred the money to another firm.
The investment fund that owned Brokerpool, which Brokerworth invested in, has also agreed to pay the fund back $3.2 million, according CBC News.
“This is a huge step in the right direction,” said Michael Schindler, head of research at brokerage firm EY Canada.
“But it is going to take time for them [Brokerhood trading] to recover from their losses.”