The Court of Queen’s Bench of Alberta heard an application by the Alberta Securities Commission (“ASC”) for a declaration that an administrative penalty levied against Theodor Hennig in June 2008 survives his discharge as a bankrupt pursuant to subsections 178(1)(a), (d) and (e) of the Bankruptcy and Insolvency Act.
The administrative penalty arose from the findings of a panel of the Securities Commission that Hennig was responsible for misrepresentations in the financial statements of a public company of which he was a director and officer, that he obtained financial benefits as a result of non-disclosure of material facts, that he participated in market manipulation which resulted in artificial prices for another company, and that he made ongoing misrepresentations to Commission staff, all contrary to the public interest.
In July 2011, Hennig declared bankruptcy, from which he was discharged in 2015.
Hennig took the positon that the statutory exemptions under section 178(1) should be construed narrowly and not as capturing his administrative penalty. The ASC submitted that the statutory exemptions should capture any decision of a regulatory authority that involves the public interest
Justice Romaine did not fully accept either submission. She interpreted s. 178(1) purposively and noted that the exceptions set out in section 178(1) of the BIA exist to ensure that debtors who have been found to have engaged in fraudulent or dishonest conduct are not entitled to a discharge. Hennig’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. It would therefore survive any discharge from bankruptcy under BIA, s. 178(e)
Although Justice Romaine acknowledged that not all regulatory penalties would fall within the exceptions from discharge, she held that this administrative penalty, in the context of the facts that gave rise to it, falls within subsection 178(1)(e) and survives Hennig's discharge from bankruptcy. The nature and substance of this debt satisfies the requirements of the subsection, as it results from obtaining property by false pretences or fraudulent misrepresentation.
- The categories of judgments captured under s. 178(1) are not closed. The court will take a purposive approach to the interpretation of the section.
- When assessing whether security commission penalties and fines survive bankruptcy, the court will look behind the penalty or fine to assess whether the impugned conduct is such that the underlying obligation should survive bankruptcy pursuant to section 178(1) of the BIA.