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Gerald Sheff, Co-Founder & Chairman - Gluskin Sheff + Associates Inc. photographed at the company's offices on Bay St., Toronto October 19, 2010.Fernando Morales/The Globe and Mail

An arbitrator's decision has opened the door for the two retired co-founders of Gluskin Sheff + Associates Inc. to collect as much as $185-million in payments from their old Bay Street firm.

Ira Gluskin is seeking $75-million and Gerald Sheff $110-million from the business they created 32 years ago, Gluskin Sheff announced on Thursday.

However, the Toronto-based wealth-management firm argues that it is obliged to pay its former leaders, according to their respective retirement agreements, up to a combined $12.2-million.

The arbitrator's ruling, which Gluskin Sheff says was rendered on Wednesday but received on Thursday, said that Mr. Gluskin and Mr. Sheff, who both retired from the corporate suite in 2009 and from the boardroom in 2013, have met the burden that is required to send this legal tussle into the next phase of arbitration.

The arbitrator found that a clause in their retirement agreements that permits them to seek an "additional remedy" had been triggered.

The catalyst, as the firm put it in its news release, is that Mr. Gluskin and Mr. Sheff were "acting reasonably" in their view that the company breached its obligation to pay bonuses to support staff in 2014 at a similar level to employees in comparable roles. At the same time, Gluskin Sheff's release states that the arbitrator didn't find that the bonuses paid to these employees infringed the terms of the contracts.

Gluskin Sheff declined to disclose when Mr. Gluskin and Mr. Sheff initiated this dispute or when the second stage in the arbitration process is scheduled to begin or end. A spokesperson for the firm declined to comment further. Mr. Gluskin and Mr. Sheff were not immediately available for comment.

According to a company filing, Mr. Gluskin and Mr. Sheff reached an agreement with Gluskin Sheff about how they would be compensated for the remainder of their lives. Five years after the co-founders relinquished their executive roles, each of them were entitled to a lump-sum payment of $1.5-million. They are also owed a yearly payment of $250,000 until death, plus other employment benefits.

"As the second phase of arbitration is only now entering its pre-hearing stages, no supporting evidence for those amounts has been provided," since both Mr. Gluskin and Mr. Sheff were on board with their original agreements, Gluskin Sheff said in the news release. "The company intends to vigorously contest these amounts," it said, adding that if the arbitrator accepts its legal arguments, it could "substantially reduce, or eliminate, the amount of the co-founders' claims."

Still, investors didn't take the news well. As shares of several other Toronto-listed money managers rose, Gluskin Sheff's stock fell almost 10 per cent at one point on Thursday, but closed down 4.5 per cent to $18.83. Since last March, the firm's shares have lost 28 per cent of their value.

Analysts at Desjardins Capital Markets said the amount in dispute is "material" to Gluskin Sheff, which posted a profit of $52-million during its last fiscal year. They predicted its stock would trade lower due to the many unknowns surrounding this dispute.

"There is a lot of uncertainty regarding this matter," they wrote in a research note to clients. "Unfortunately, we have no clarity on the eventual outcome or timing on when this might be settled."