KPMG and Cassels Cleared of Negligence in Cash Store Collapse

The Ontario Superior Court of Justice has dismissed all claims against KPMG LLP and Cassels Brock & Blackwell LLP stemming from the high-profile insolvency of The Cash Store Financial Services Inc. (“Cash Store”), a former payday lending chain that collapsed into CCAA protection in 2014 following mounting regulatory sanctions and liquidity pressures.

In 1511419 Ontario Inc. v. KPMG LLP, 2025 ONSC 5796, Justice W.D. Black rejected allegations by the Cash Store estate (the “CS Estate”) that the two firms had negligently failed to warn directors and investors of the company’s deteriorating financial position, or had facilitated misleading financial disclosures and transactions that deepened its insolvency. The CS Estate (the post-CCAA entity) had sought damages of between $119 million and $178 million, plus disgorgement of Cassels’ $6.7 million in legal fees.

Headquartered in Edmonton, Cash Store grew to more than 500 retail locations across Canada and the UK, offering short-term loans to consumers through a network of agents. By 2013, the company faced escalating enforcement action from regulators over allegations of predatory lending practices and improper fee structures. The mounting scrutiny choked off access to capital markets and triggered a sharp decline in profitability.

The plaintiff’s case centred on KPMG’s audits of Cash Store’s 2011 and 2012 financial statements and Cassels’ advice on a 2012 “loan internalization” transaction that transferred loan receivables from independent lenders to Cash Store itself. The CS Estate alleged that both firms should have recognized by late 2011 that the company was insolvent and that their work allowed management to conceal its true condition while raising additional funds from investors.

Justice Black firmly rejected those claims. He found that KPMG’s audits and review engagements complied with GAAP and GAAS and that the firm had exercised diligence, professional skepticism, and sound professional judgment. Compliance with auditing standards, while not an absolute defence, was sufficient in this case to establish that KPMG met the applicable duty of care. The Court accepted expert evidence that no material misstatements were identified and that the company’s financial forecasts and valuations remained within a reasonable range at the time.

The Court likewise dismissed the “deepening insolvency” theory advanced against both defendants, preferring defence expert testimony that Cash Store remained solvent through early 2012 based on available cash flow projections, positive equity values, and ongoing dividend payments. The claim against Cassels for breach of fiduciary duty and disgorgement of legal fees also failed, with Justice Black noting that the CS Estate conflated “disgorgement of profits with disgorgement of fees”, and there was no evidence before the Court as to what portion of the overall fees charged reflected profits.

Justice Black further concluded that the claims were statute-barred under the Limitations Act, as senior management knew of the alleged overvaluation of Cash Store’s loan portfolio months before the plaintiff’s asserted discovery date.

The 82-page ruling ends more than a decade of litigation surrounding one of Canada’s most prominent consumer lending failures. Cash Store entered CCAA protection in 2014, with its retail operations shuttered and more than 500 employees affected. Following years of recovery efforts and claims proceedings, the CS Estate pursued this professional negligence suit as one of the last major recovery avenues.

Costs submissions are to follow.

Gerald Ranking, Jesse Harper, Pavel Sergeyev and Anita Hojabr of Fasken Martineau DuMoulin LLP acted for KPMG LLP, while Dan Murdoch, Sinziana Hennig, Maryam Shahid and RJ Reid of Stikeman Elliott LLP acted for Cassels Brock & Blackwell LLP.

John Finnigan, James Hardy and Jessica DeFilippis of Thornton Grout Finnigan LLP and Megan Keenberg of Keenberg & Co represented the CS Estate.