In February 2020, we blogged about a then recent decision by Romaine J. of the Court of Queen’s Bench of Alberta relating to the interplay between the personal bankruptcy regime and administrative penalties. In Alberta Securities Commission v Hennig, 2020 ABQB 48 (Hennig), the Alberta Securities Commission (ASC) levied an administrative penalty against an individual who, among other things, was responsible for misrepresentations in a public company’s financial statements. That individual then made an assignment in bankruptcy and ultimately sought his discharge. Romaine J. ruled that the administrative penalty was imposed as a consequence of fraudulent conduct and it would therefore survive the discharge from bankruptcy by operation of s. 178(1)(e) of the Bankruptcy and Insolvency Act (BIA).
A copy of our original blog post from February 2020 is linked here.
A reader of this blog recently made us aware of an oral decision of Neufeld J. from October 2020 that supplemented the analysis of Romaine J. from Hennig. A transcript of the oral decision of Neufeld J. was reported by Quicklaw as Smylski (Re), [2020] AJ No 1258 (Smylski).
In Smylski, the ASC levied an administrative penalty in October 2010 against an individual, Mr. Smylski. The ASC found that Mr. Smylski had violated securities laws, in part, by promising guaranteed returns, making untrue and misleading statements about the taxation of investments and market risk, and misrepresenting the RRSP and RRIF eligibility of investments. The administrative penalty was then converted into a judgment of the Court of Queen’s Bench of Alberta.
Mr. Smylski made an assignment in bankruptcy in September 2011.
Mr. Smylski only managed to repay a small fraction (less than 1%) of the administrative penalty in nearly ten years after it was levied against him. The ASC applied for a new judgment against Mr. Smylski under Rule 9.21 of Alberta’s Rules of Court (“Application for new judgment or order”), which was necessary due to the passage of time. The ASC argued that a new judgment should be issued against Mr. Smylski, despite his personal bankruptcy, because the judgment resulted from an administrative penalty for fraudulent misrepresentation.
Neufeld J. accepted the ASC’s arguments. In so doing, he expressed full agreement with Romaine J.’s analysis from Hennig and confirmed the survival of Mr. Smylski’s liability for the administrative penalty under either or both of ss. 178(1)(a) and (e) of the BIA.
Neufeld J. added to Romaine J.’s analysis, specifically in relation to s. 178(1)(a) of the BIA. Under that provision, any “penalty . . . imposed by a court” is not released upon a bankrupt’s discharge. Neufeld J. accepted that an ASC-levied penalty for fraudulent misrepresentation, particularly if converted to a judgment, should be accepted as a penalty imposed by a court. “Court” should be interpreted broadly, both as a matter of practicality to achieve Parliament’s objective and based on the definition under s. 2 of the BIA. The ASC’s application was granted by Neufeld J. accordingly.
In Smylski, Neufeld J. – like Romaine J. before him – took a purposive approach to interpreting s. 178(1) in order to prevent an individual from using a personal bankruptcy to avoid the necessity of paying an administrative penalty based on violations of securities laws.