British Columbia is urging the federal government to amend Canada’s bankruptcy law so that people guilty of misconduct in the capital markets aren’t able to dodge penalties by declaring themselves insolvent.
B.C. Finance Minister Carole James is lobbying Ottawa to add language to the Bankruptcy and Insolvency Act so that individuals fined by the country’s provincial securities commissions can’t use bankruptcy to shield themselves from paying. The British Columbia Securities Commission says it has been powerless to collect $28-million in fines because a number of debtors declared bankruptcy after the regulator levied fines against them.
“Right now, the federal government allows student loans to survive bankruptcy, but securities commission fines do not. We don’t think that’s fair,” Ms. James said in a speech in the B.C. Legislature in October.
In a 2018 letter to federal Finance Minister Bill Morneau and Innovation Minister Navdeep Bains – whose ministry oversees the Office of the Superintendent of Bankruptcy – Ms. James noted the United States bankruptcy code allows securities commission fines to survive bankruptcy, while Canada’s does not.
A spokeswoman for Mr. Bains said in a statement that, “at this time,” the government is not planning changes to the act. “The government welcomes a continued discussion with the government of British Columbia on this proposed amendment,” Véronique Simard said in an e-mail.
The proposed change to the law is part of a broader effort by the B.C. government to crack down on white-collar crime – the centerpiece of which is a full-blown public inquiry into the use of casinos and real estate to launder money. More recently, the B.C. government passed a series of amendments that will give its securities commission new tools to investigate fraud and enforce sanctions.
Many of the amendments, which are expected to come into force in the near future, will expand the commission’s powers to collect fines. In 2017, reports in both The Globe and Mail and the Vancouver Sun highlighted the obstacles faced by the provincial commissions when they try to force offenders to pay penalties. A Globe analysis found that the total amount of unpaid fines across the country was more than $1.1-billion. Ms. James cited the media reports in her 2018 letter to Mr. Morneau and Mr. Bains.
The B.C. reforms will allow the commission to seize the funds of offenders even if they are in a registered account, something the commission was unable to do previously. The changes will also allow the commission to target assets – such as a house or a car – that have been suspiciously transferred from an offender to a relative or third party for less than market value. That particular amendment includes language that makes it retroactive – meaning the commission can target a debtor who entered into such a transaction before the law came into force.
The new law also uses drivers licences as a lever to force debtors to pay. Anyone with an outstanding fine to the B.C. Securities Commission will not be permitted to renew their licence, said Doug Muir, the director of enforcement for the commission.
“The legislature has said if you refuse to pay your securities fine, you’re not going to have that privilege of driving anymore,” Mr. Muir said.
In an interview with The Globe, Mr. Muir said the B.C. government’s proposed amendment to the Bankruptcy and Insolvency Act would be another step to improving collection rates across the country.
In January, an Alberta Court of Queen’s Bench judge found that Theodor Hennig, a debtor owing money to the Alberta Securities Commission, could not escape a $400,000 penalty despite his discharge from bankruptcy. Mr. Hennig was first sanctioned in 2008 for, among other infractions, misrepresentation and market manipulation. He declared bankruptcy in 2011 and was discharged in 2015, yet the commission pursued the debt anyway.
Mr. Muir said the decision is encouraging, but is no substitute for a more sweeping amendment to the federal law. Until that happens, Mr. Muir said such cases will have to be litigated and decided on a case-by-case basis. The amendment would also make it clear across the country that such debts cannot be extinguished by bankruptcy, he said.
“I agree with our minister and would encourage the federal government to make that change,” Mr. Muir said.