Alberta Court Finds that Administrative Penalty Survives Bankruptcy

In January 2020, Madam Justice B.E. Romaine of the Court of Queen’s Bench of Alberta (Court) ruled that an administrative penalty levied against the Respondent by the Alberta Securities Commission (ASC) survived his discharge from bankruptcy. (See Alberta Securities Commission v Hennig, 2020 ABQB 48)

The administrative penalty was levied in 2008 against the Respondent after the ASC found that he was responsible for misrepresentations in the financial statements of a public company of which he was a director and officer; that he financially benefited from the misrepresentations; that he participated in market manipulation; and that he made ongoing misrepresentations to ASC staff.

An appeal by the Respondent was later dismissed.

The Respondent filed an assignment in bankruptcy in 2010.  Nearly a decade later, Romaine J. was tasked with deciding whether the administrative penalty should survive the Respondent’s discharge from bankruptcy.

A discharge from bankruptcy releases an individual bankrupt from all provable claims in bankruptcy, subject to certain statutory exemptions under s. 178(1) of the Bankruptcy and Insolvency Act (BIA).

The Respondent argued that the statutory exemptions should be construed narrowly and not as capturing his administrative penalty.  The ASC argued that the statutory exemptions should capture any decision of a regulatory authority that involves the public interest.

Romaine J. did not accept either submission – at least not fully.  She interpreted s. 178(1) purposively.  The purpose underlying BIA, s. 178(1)(e) was precluding dishonest debtors from benefitting from their dishonesty.  Not all administrative penalties should survive a bankrupt’s discharge; however, the Respondent’s administrative penalty resulted from conduct that caused property to pass based on fraudulent misrepresentations and false pretenses.

The Respondent’s administrative penalty was imposed in response to his fraudulent conduct, and consistently with the ASC’s mandate to protect the public interest and promote the integrity of the capital markets, and would therefore survive any discharge from bankruptcy under BIA, s. 178(e)