The Impact of Bankruptcy on Disciplinary Fines and CostsChartered Professional Accountants of Alberta v Neilson, 2018 ABQB 170 (CanLII)
Bankruptcy is intended to provide people with an opportunity to gain a fresh start without the burden of debt; it is governed by federal law. Disciplinary proceedings are intended to protect the public from harm, often through the imposition of a sanction to deter the regulated practitioner and others; they are governed by provincial law. Valid federal law is paramount over inconsistent provincial law. One can just imagine the complexities that flow where a bankrupt practitioner also faces fines and costs imposed by a disciplinary panel. This complexity is fully evident in the lengthy discussion of the issues in Chartered Professional Accountants of Alberta v Neilson, 2018 ABQB 170, http://canlii.ca/t/hr0wg.
In that case the practitioner initiated bankruptcy proceedings while he was under investigation by his regulator for allegations of serious misconduct (the events of two incidents arose before he declared bankruptcy; the events of the third incident occurred after he declared bankruptcy). Ultimately an agreement was reached between the practitioner and regulator resolving all three matters and resulting in the cancellation of the practitioner’s registration, a fine of $50,000 and a $15,000 costs order, among other things. When the regulator tried to collect those amounts, the practitioner refused to pay, saying that they were covered by the bankruptcy proceeding and that he would not have reached an agreement with the regulator if he knew he would actually have to pay the fines and costs. The primary issue for the court was determining whether these amounts were contingent liabilities that could be estimated (i.e., were provable) at the time of bankruptcy (in which case they would be covered by the bankruptcy proceeding) or whether they were too speculative to be included in the bankruptcy process.
After a detailed analysis, the court found that the costs ordered by the Discipline panel relating to the two complaints that arose prior to the practitioner declaring bankruptcy were provable because they were relatively predictable in the circumstances (and as such, they were covered by the bankruptcy process and the regulator could not collect on them). However, the fines imposed in relation to all three complaints, as well as any costs that related to the third complaint, were speculative at the time the practitioner declared bankruptcy and so they could be recovered by the regulator outside of the bankruptcy process. The court analyzed the various factors that go into determining what sanction a discipline panel will order in a particular case and found that it was impossible to predict that a fine would be imposed against the practitioner (in addition to revoking his registration, which seemed guaranteed). As such, the court ordered that the regulator was entitled to a money judgement against the practitioner for the fines (as well as the incremental costs related to the third allegation).
Where regulators are aware that a member has initiated bankruptcy proceedings prior to a discipline hearing, they should take the bankruptcy proceedings into account when developing the appropriate sanction. In addition, regulators should generally be aware that bankruptcy proceedings after a discipline hearing can have a significant impact on the collectability of the monetary aspects of the sanction.