Alberta Court Rules That An Alberta Securities Commission Administrative Penalty Can Survive Bankruptcy

On January 17, 2020, Justice Romaine of the Alberta Court of Queen's Bench released a potentially monumental decision in Alberta Securities Commission v Hennig. The decision arose out of an application by the Alberta Securities Commission for a declaration that an administrative penalty levied against Theodor Hennig for $575,000.00 survives his discharge as a bankrupt pursuant to subsections 178(1)(a),(d), and (e) of the Bankruptcy and Insolvency Act. Justice Romaine ultimately decided that both ss. 178(1)(a) and (e) exempted the penalty from the standard bankruptcy discharge and that the penalty against Hennig persisted.

In 2008, an ASC panel found that Hennig:

was responsible for improper financial disclosure and misrepresentations in the 1998-2000 financial statements of several corporations with which he was involved; obtained financial benefits from investor funds that were not disclosed as required; participated in market manipulation that resulted in artificial prices for certain securities; contravened insider trading laws; made numerous misrepresentations to the ASC; and acted contrary to the public interest in carrying out the foregoing. The panel's decision ordered a $400,000.00 penalty and $175,000.00 in costs against Hennig. The decision was then certified as a court judgment by the Alberta Court of Queen's Bench. An Appeal from the decision was dismissed in 2010.

In 2011, Hennig filed an assignment in bankruptcy and was discharged in 2015.

Under normal circumstances, all claims provable in bankruptcy against Hennig would have been released by that discharge. However, s. 178 (1) of the BIA sets out several limited exceptions to the general rule. Of particular interest to this case are (a), (d), and (e). The relevant sections of the BIA are as follows:

178 (1) An order of discharge does not release the bankrupt from

(a) any fine, penalty, restitution...