Impact of Bankruptcy on Discipline Sanctions

There is continuing ambiguity as to the impact of a practitioner’s bankruptcy proceedings on disciplinary sanctions. The goal of the bankruptcy process is to enable an individual to obtain a fresh financial start. That goal is undermined if debts are not extinguished by the bankruptcy. In the case of Alberta Securities Commission v Hennig, 2021 ABCA 411 (CanLII), https://canlii.ca/t/jl93g, Alberta’s highest court indicated that the exceptions to that rule should be narrowly interpreted.

In that case the individual was found to have engaged in serious securities violations including issuing misleading statements to the investing public. The sanction included a significant administrative penalty and a large costs order. The regulator argued that the sanction survived the individual’s bankruptcy under exceptions related to “a fine, penalty, restitution order or other order similar in nature … imposed by a court in respect of an offence” or a “debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation”. The Court, on a detailed interpretation of the provisions concluded that the exceptions did not apply, and that the sanction orders were extinguished upon the individual’s discharge from bankruptcy. While not in issue, the reasoning of the Court would likely have led to the same result if the sanction had been a fine rather than an administrative penalty. The same outcome (extinguishing of the debt) would be even more likely to have resulted, before this Court at least, for monetary sanctions imposed for non-financial misconduct by a practitioner of another profession (e.g., a health practitioner).

The Court noted that the other sanctions, namely a permanent ban on being an officer or director or an issuer and a 20-year cease trading ban, remained in force.

While the case law on the point is somewhat confusing, when imposing sanctions in discipline matters, regulators should take into account that the financial aspects of their order might be impacted by the bankruptcy process. It may be prudent to include non-financial elements as part of the sanction, perhaps even as an alternative to fulfillment of the financial sanctions.

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