In Alberta Securities Commission v Hennig, 2021 ABCA 411 (CanLII), https://canlii.ca/t/jl93g, Alberta’s highest court took a narrow view as to when disciplinary sanctions of a financial nature can be enforced after a registrant becomes bankrupt. British Columbia’s highest court has recently waded into the fray.
In Poonian v. British Columbia (Securities Commission), 2022 BCCA 274 (CanLII), https://canlii.ca/t/jr8k8 two individuals had been required to pay the regulator hefty disgorgement amounts and administrative penalties which the regulator filed with the court for enforcement purposes. While reaching the conclusion by a different route than the Court in Hennig, the BC Court concluded that generally the insolvency legislation “cannot be read so broadly as to include fines imposed by tribunals that are registered in a court.” Such orders are not “imposed” by a court as required.
However, the BC Court found that another provision applied in this case so as to allow the regulator to enforce the orders. Insolvency legislation does not extinguish “any debt or liability arising from obtaining property or services by false pretenses or fraudulent misrepresentation”. Taking a more liberal interpretation on this point than the Court in Hennig, the Court said:
The evidence supported the conclusion that the judgment against the Poonians was founded upon the fact they had engaged in fraudulent misrepresentation and had obtained property as a result. The judge considered the allegations upon which the Commission based its decision. There was a direct relationship between the fraudulent conduct and the fines and disgorgement order. Finally, in my view, the fact that the misrepresentation was not made to the Commission does not preclude it from relying on the exemption.
Assuming this approach might be followed by other courts, regulators imposing fines or other financial sanctions should be explicit in stating when they relate to registrants obtaining a financial benefit through dishonesty. Examples might include false billing and taking client property. If those circumstances do not exist, the financial aspects of their orders might be extinguished through the bankruptcy process. As such, 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.