Court File and Parties
COURT FILE NO.: BK-17-2200955-0031 DATE: 20190708 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST) IN THE MATTER OF THE BANKRUPTCY OF DENNIS ROY WING
BEFORE: Penny J.
COUNSEL: D. Ullman and A. Teodorescu for the Bankrupt Maya Poliak for the Ontario Securities Commission C. Haddon Murray for Richter Advisory Group Inc., Trustee
HEARD: May 22, 2019
Endorsement
Overview
1The Debtor, Dennis Wing, filed a notice of intention to make a proposal under the BIA in January 2017. In July 2017, Mr. Wing’s creditors voted against his proposal and he was deemed to have made an assignment into bankruptcy. Mr. Wing remains undischarged.
2There are two motions before me. In the first motion, Mr. Wing seeks an order lifting a freeze direction of the Ontario Securities Commission over his registered retirement saving plan and locked in retirement accounts with a value of about $1.9 million. In the second motion, the OSC seeks an order that certain monetary penalties Mr. Wing was ordered to pay as a result of violations of a cease trade order are not claims provable in bankruptcy, such that the OSC may proceed with enforcement of these claims notwithstanding Mr. Wing’s outstanding bankruptcy.
3For the reasons that follow, Mr. Wing’s motion is dismissed and the OSC’s motion is allowed.
Background
4The following chronology, which I have taken from the Trustee’s factum, summarizes the undisputed relevant factual background:
(a) February 11, 2015 – the OSC issued a decision finding that Mr. Wing had engaged in insider trading and misled OSC staff during an examination;
(b) June 24, 2015 – the OSC issued a sanctions and costs order (the “sanctions order”) imposing the cease trade order (“CTO”) and requiring Mr. Wing to:
(i) pay administrative penalties totaling $1.75 million;
(ii) disgorge money obtained from his insider trading activity of $520,196; and
(iii) pay part of the OSC’s costs of the investigation and hearing of $300,000;
(c) August 24, 2015 – Mr. Wing sold publicly traded shares in violation of the CTO;
(d) September 11, 2015 – the OSC issued the freeze direction, freezing Mr. Wing’s assets including his RRSP and LIR accounts;
(e) September 23, 2015 – Mr. Wing and the OSC entered into an agreement providing that the freeze direction would continue until it is revoked by the OSC or the Court orders otherwise;
(f) October 26, 2016 – the Divisional Court dismissed Mr. Wing’s appeal of the sanctions and costs order;
(g) December 19, 2016 – Mr. Wing initiated proposal proceedings by filing a notice of intention under s. 50.4(1) of the Bankruptcy and Insolvency Act (the “BIA”);
(h) January 18, 2017 – Mr. Wing filed his proposal;
(i) February 7, 2017, – the first meeting of creditors was convened but adjourned as a result of questions raised by the OSC regarding undisclosed assets;
(j) May 4, 2017 – the OSC commenced a proceeding against Mr. Wing regarding the alleged violation of the CTO;
(k) May 5, 2017 – the Trustee advised that there were a number of bank accounts with balances in excess of $500,000 that Mr. Wing had not disclosed to the Trustee or in his statement of affairs;
(l) July 28, 2017 – the first meeting of creditors took place. Mr. Wing’s amended proposal was rejected by a vote of his creditors. Accordingly, Mr. Wing was deemed to have made an assignment into bankruptcy;
(m) November 21, 2017 – Justice Conway, in an endorsement, found it was not necessary to decide whether the CTO violation proceeding was caught by the statutory stay of proceedings under s. 69.4 of the BIA on the basis that she would, in any event, lift the stay to permit the OSC to continue with the CTO violation proceeding;
(n) May 18, 2018 – Mr. Wing and the OSC entered into a settlement agreement regarding the CTO violation proceeding, in which Mr. Wing acknowledged the breach of the CTO and that OSC staff would seek an order for monetary penalties; and
(o) May 24, 2018 – the OSC issued an order in the CTO violation proceeding, requiring Mr. Wing to pay a monetary penalty of $120,000 and $5,000 in costs in respect of his violation of the CTO (the “administrative penalty”).
Issues
5Each motion raises a discrete issue. Mr. Wing’s motion is founded essentially on s. 67(1) of the BIA which exempts the RRSP and LIR accounts from “property divisible among” his creditors. On this basis, Mr. Wing argues that these accounts are “exempt from execution or seizure” such that the effect of the OSC freeze direction is spent or, in any event, is over-ridden by s. 67(1) of the BIA. This is because, Mr. Wing argues, all of the Debtor’s property has either vested in the Trustee or, as is the case with the RRSP and LIR accounts, is exempt from execution or seizure.
6The issue on Mr. Wing’s motion is, therefore, whether s. 67(1) requires a finding that the freeze direction is “obsolete” or “no longer serves a purpose” such that a declaration should issue that the freeze direction “is of no force or effect as of the date of bankruptcy.”
7The OSC motion is founded on s. 121 of the BIA which provides that a liability to which the bankrupt is subject on the date of bankruptcy, or to which the bankrupt may become subject by reason of an obligation incurred before the date of bankruptcy, is deemed to be a claim provable in bankruptcy. The OSC argues the administrative penalty resulting from the CTO violation hearing is an obligation incurred after the date of bankruptcy and is not, therefore, a claim provable in bankruptcy.
8The OSC motion turns on the application of the three-part test established in AbitibiBowater Inc., Re, 2012 SCC 67 (as further developed in Orphan Well Association v. Grant Thornton Ltd., 2019 SCC 5):
(i) there must be a debt or obligation owed to a creditor;
(ii) which was incurred before the debtor became bankrupt; and
(iii) it must be possible to attach a monetary value to the debt or obligation at the date of bankruptcy.
9There is a subsidiary part to this issue as well, which is whether, even if the administrative penalty is not a claim provable in bankruptcy, the OSC is estopped from enforcing this order before the Trustee’s discharge as a result of an undertaking given by the OSC to Mr. Wing and to the Court.
Analysis
1. Debtor’s Motion to Declare the Freeze Direction of No Force or Effect
10In essence, the Debtor argues that the OSC sanction order requiring a payment of $2,570,196 is indisputably a claim provable in bankruptcy. It was clearly an obligation incurred before bankruptcy; indeed, it is a reasonable inference that the sanction order is precisely what prompted the Debtor’s decision to issue a NOI. Likewise, there is no dispute that enforcement of that claim was stayed under the BIA. The OSC used its claim, which was accepted in full by the Trustee, to vote against Mr. Wing’s proposal, thereby causing him to become bankrupt on July 28, 2017.
11The Debtor goes on to argue that, as a claim provable in bankruptcy, the OSC sanction order can only be recovered through recourse to the Debtor’s non-exempt assets in the hands of the Trustee, and even then, only on a pro rata basis with all other creditors in accordance with the scheme established under the BIA.
12All divisible property of the bankrupt vests with the Trustee. The OSC can only look to the Debtor’s divisible property, pro rata, for the satisfaction of its claim. With all divisible property already vested in the Trustee, the OSC freeze direction no longer serves any purpose.
13The primary mechanism under the BIA to fulfill the rehabilitative policy of the Act is that, upon discharge, a bankrupt is entitled to a release from all claims provable in bankruptcy. Every bankruptcy takes precedence over all judicial or other attachments except those completely executed by payment before the bankruptcy.
14In addition, however, the BIA makes the RRSP and LIR accounts exempt assets. This is to ensure that a discharged bankrupt will have the financial means to care for him or herself without becoming a burden on society. This also reflects the rehabilitative policy underlying the BIA.
15Mr. Wing argues that the continued existence of the freeze direction frustrates the rehabilitative objective of the BIA. For this reason as well, he asks that the freeze direction be declared of no force or effect.
16I am unable to agree with these arguments. It is true that the exempt assets are not divisible among creditors in a bankruptcy. However, as is conceded by the Debtor, the creditors may oppose his discharge. There are two relevant outcomes:
Mr. Wing may be discharged, in which case his non-exempt property is divisible among creditors and he is entitled to be released from all other claims (excepting s.178(1) claims) on the date of discharge; or
the Court refuses Mr. Wing’s discharge, in which case, once the Trustee is discharged, the creditors are free to enforce their claims.
17Sections 172 and 173 of the BIA make it clear that the conduct of a bankrupt is an important element in determining whether he or she is entitled to receive a discharge. Financial rehabilitation is not without limits. Rehabilitation must be balanced against other factors, including confidence in the credit system, Alberta (Attorney General) v. Moloney, 2015 SCC 51 at para 37. It is the “honest but unfortunate debtor” whom the BIA favours with a discharge subject to reasonable conditions.
18Without in any way prejudicing the issue, which is solely for the Court on the discharge hearing to decide, there is at least a credible prospect of reasonable opposition to Mr. Wing’s discharge based on the Trustee’s Third Report and other factors set out in the Trustee’s factum. This includes:
(a) misconduct which lead to the bankruptcy;
(b) failure to disclose assets;
(c) failure to disclose dispositions of property;
(d) false, evasive and misleading statements;
(e) failure to provide accurate income and expense reports;
(f) failure to provide adequate information about share transfers; and
(g) the structuring of Mr. Wing’s affairs so as to put assets beyond the reach of his creditors while enabling him to maintain a lifestyle inconsistent with his stated income.
19Further, in the present circumstances, the continued existence of the freeze direction does not frustrate the rehabilitative purpose of preserving certain retirement savings for the discharged bankrupt’s use in retirement. The Debtor has advanced no evidence, or arguments, in support of any current need for the exempt assets to fund his retirement. There is no suggestion of execution by or distribution to the OSC or any other creditors of the exempt assets pending the discharge hearing. The purpose for the freeze direction is still in play. Until the question of Mr. Wing’s discharge is resolved, it cannot be said there will be a release of creditors’ claims against him. If a discharge is refused, on the Trustee’s discharge, the OSC will have the right to pursue execution on its claims and the exemption under the BIA will no longer apply to the RRSP and LIR accounts.
20The freeze direction was made prior to Mr. Wing’s NOI and subsequent bankruptcy. The preservation of the status quo, therefore, would suggest leaving the freeze direction in place so long as it serves any purpose. I find that it does.
21If Mr. Wing has current need of access to the exempt property to live on in his retirement, he can apply to the Court for release of the necessary funds. He has not done so. Rather, Mr. Wing seeks release to him of these funds in their entirety, subject to his sole discretion, prior to a determination about his discharge.
22I find that Mr. Wing has no legal entitlement to the declaratory relief sought. Nor, I find, should the Court’s discretion be exercised to grant such relief at this time. Accordingly, the Debtor’s motion for a declaration that the freeze direction is of no force or effect is dismissed.
2. OSC Motion to Declare that the Administrative Penalty and Costs Order is Not a Claim Provable in Bankruptcy
23Subsection 121(1) of the BIA establishes the criteria for a provable claim:
All debts and liabilities, present or future, to which the bankrupt is subject on the day on which the bankrupt becomes bankrupt or to which the bankrupt may become subject before the bankrupt’s discharge by reason of any obligation incurred before the day on which the bankrupt becomes bankrupt shall be deemed to be claims provable in proceedings under this Act.
24Under s. 121(2) of the BIA, a claim may be provable in a bankruptcy proceeding even if it is a contingent claim. A contingent claim is a claim which may or may not ever ripen into a debt according to some future event which does or does not happen. The determination of whether a contingent or unliquidated claim is a provable claim and the valuation of such a claim is to be made in accordance with s. 135 of the BIA. Section 135 provides that the trustee shall determine whether a contingent claim is a provable claim and if so to value it.
25As noted above, in AbitibiBowater Inc., Re, as further developed in Orphan Well Association v. Grant Thornton Ltd., the Supreme Court of Canada held that in order for any obligation to be a claim provable in bankruptcy, it must meet the following three-part test:
(i) there must be a debt or obligation owed to a creditor;
(ii) which was incurred before the debtor became bankrupt; and
(iii) it must be possible to attach a monetary value to the debt or obligation at the date of bankruptcy.
26I shall, therefore, address each of these factors below.
27Before doing so, however, it must be said that, as significant as these two Supreme Court decisions are for the resolution of potentially conflicting regulatory and bankruptcy regimes, there are at least two subtle distinctions between the circumstances of the present case and the regulatory orders dealt with in Abitibi/Orphan Well. The first is that the regulatory orders in Abitibi/Orphan Well did not impose a monetary obligation on the debtor to pay money to the regulator. The orders imposed obligations to perform environmental remediation which had financial implications, to be sure, but the regulatory orders did not require the debtor to pay money directly to the regulator. Under the environmental protection regimes in issue, however, the regulator had the ability to perform the environmental remediation itself and to seek reimbursement of the cost from the debtor. In this case, by contrast, while the initiating event (the statement of allegations and notice of hearing) imposed no obligations of any kind on Mr. Wing, the ultimate OSC decision in the CTO violation proceeding did impose a monetary penalty payable by the Debtor to the OSC.
28The second distinction arises from the fact that the pre-date of bankruptcy regulatory orders made in both the Supreme Court cases actually imposed the remediation obligations in issue. That is, these were not notices of a future hearing at which the existence or non-existence of the remediation obligations would be determined. The remediation obligations came into existence immediately upon the regulatory orders being made. In this case, by contrast, the pre-bankruptcy step taken was, as noted above, a statement of allegations and notice of hearing. No obligation to pay the OSC administrative penalty arose (or could arise) until the hearing was held and the OSC rendered a decision.
29It will come back to the implications of these distinctions later in my analysis.
30The only case more or less directly on point was cited by the OSC. This is a decision of the British Columbia Superior Court in Re Thow, 2009 BCSC 1199 which, obviously, predates the Abitibi/Orphan Well decisions of the SCC. In Thow, the BC Securities Commission had undertaken an investigation into alleged violations of the BC Securities Act by June 2005. In July 2005, the debtor filed a proposal, which was rejected; the debtor was therefore deemed bankrupt. The BC Securities Commission issued a notice of hearing in July 2006. The hearing was held and, in October 2007, the Commission issued a decision finding the bankrupt had committed Securities Act violations. In December 2007 the Commission issued its decision on sanctions which included an order that Thow pay an administrative penalty. This was a discretionary remedy available to the Commission (as it is in Ontario) pursuant to the Commission’s powers to act in the “public interest.”
31The issue for the Court was whether the administrative penalty was a claim provable in bankruptcy. Sigurdson J. concluded that it was not. Justice Sigurdson found that the Commission’s decision to impose a penalty was discretionary. The bankrupt was not liable to the Commission until the Commission exercised that discretion. [1] The penalty was, therefore, not a contingent liability or an obligation under s. 121 of the BIA at the date of bankruptcy. The penalty was an obligation that arose after the date of bankruptcy and was not, for this reason, a claim provable in the bankruptcy.
32I will now turn to the three-part test set out by the Supreme Court in Abitibi/Orphan Well.
1. Was the Commission a Creditor?
33The OSC argues that the Supreme Court in Orphan Well distinguished between the claims of regulators seeking to enforce the public interest and proceedings by regulators for recovery of a debt, relying on the following passage from para. 122:
Abitibi should not be taken as standing for the proposition that a regulator is always a creditor when it exercises its statutory enforcement powers against a debtor. On a proper understanding of the “creditor” step, it is clear that the Regulator acted in the public interest and for the public good in issuing the Abandonment Orders and enforcing the LMR requirements and that it is, therefore, not a creditor of [the bankrupt]. It is the public, not the Regulator or the General Revenue Fund, that is the beneficiary of those environmental obligations; the province does not stand to gain financially from them…
34At the date of Mr. Wing’s bankruptcy, the CTO violation proceeding was a proceeding to enforce the public interest, not for recovery of a debt. The OSC imposed the cease trade order as a result of the Commission’s conclusion, in the exercise of its discretion in the public interest, that permanent prohibitions against Mr. Wing with respect to trading and acquisition of securities were appropriate. The purpose of the cease trade order was to protect the public interest and deter Mr. Wing (and others) from engaging in contraventions of Ontario securities law. By breaching the cease trade order, Mr. Wing engaged in serious, prohibited conduct. Mr. Wing ultimately admitted there were no mitigating factors. In initiating the CTO violation proceedings, the OSC was again acting as a regulator exercising discretionary powers in the public interest. The OSC was not a creditor of Wing when it initiated this proceeding before the date of his bankruptcy and, as such, the administrative penalty which ultimately resulted does not constitute a claim provable in bankruptcy.
35The Trustee supports the position of the OSC. The Trustee relies on the decision of Morawetz J. (as he then was) in Terrace Bay Pulp Inc. Re, 2013 ONSC 5111. This case was decided after Abitibi but before Orphan Well. In Terrace Bay, the Court was dealing with a motion for a stay of a Ministry of Labour proceeding against the debtor for violations of health and safety legislation. The incidents giving rise to these proceedings had occurred before the debtor filed under the CCAA.
36Justice Morawetz dismissed the motion. He concluded that the health and safety proceedings did not require the debtor to expend any funds or resources. Whether a financial penalty might or might not be imposed had yet to be determined. There would have to be a finding of guilt before any penalty could be imposed, and an exercise of the tribunal’s discretion to impose a financial penalty. Accordingly, Justice Morawetz found that the Ministry was not acting as a creditor. He said, “[i]ts activities, at this stage, are regulatory or prosecutorial in nature.”
37Mr. Wing relies on the Supreme Court decision in Abitibi, which held that “the only determination that has to be made at this point [the first step in the three-part test] is whether the regulatory body has exercised enforcement power against a debtor. When it does so, it identifies itself as a creditor, and the requirement at this stage of the analysis is satisfied.” Accordingly, because the OSC exercised enforcement powers before the bankruptcy in the form of issuing a notice of hearing to determine whether Mr. Wing had breached the CTO and whether it was in the public interest to levy an administrative penalty against him of up to $1 million, the OSC was a creditor on the date on bankruptcy.
38Mr. Wing goes on to argue that the OSC’s interpretation of the first step in the Abitibi test is inconsistent with its own conduct in this case. The judgment in the original sanction order, even though it too sought to enforce the public interest, is, by the OSC’s own admission, a claim provable in Mr. Wing’s bankruptcy. The only difference between the original sanction order and the later administrative penalty in the CTO violation proceeding is that the original sanction order was issued before Mr. Wing’s bankruptcy and the additional administrative penalty in the CTO violation proceeding was issued after. Mr. Wing argues that the CTO violation proceeding, commenced before the bankruptcy based on conduct which occurred before the bankruptcy, was explicitly a claim for a monetary penalty; this was the only remedial relief sought. As such, it was a contingent claim for $1 million and ought to be treated as such in the bankruptcy. The OSC, as the contingent claimant, must therefore be considered a creditor in respect of that claim as of the date of bankruptcy.
Analysis
39The broad, inclusive in approach to the first step taken by the Court in Abitibi (and relied on by Mr. Wing, as quoted above) was clearly rejected by the court in Orphan Well. In Orphan Well, the Court explained that in Abitibi, the application judge had made a finding of fact that the province of Newfoundland and Labrador never truly intended that Abitibi would perform the remediation work ordered. Instead, it merely sought a claim that it could use as an offset in Abitibi’s NAFTA proceedings based on the province’s expropriation of Abitibi’s assets. The province of Newfoundland and Labrador was a direct, financial beneficiary of the environmental orders in question. This was not an exercise of independent discretion for the public good. The orders in question were, in substance, not regulatory at all; they were purely financial.
40The Court went on to say that while Abitibi emphasized the need to consider the substance of provincial regulation, it does not stand for the proposition that “a regulator exercising its enforcement powers is always a creditor.” The Supreme Court in Orphan Well adopted the following passage from the decision of Laycraft C.J.A. in Panamericana de Bienes Servicios S.A. v Northern Badge Oil & Gas Ltd., 1991 ABCA 181 at para. 33:
…the obligation of the citizen is not to the peace officer, or public authority which enforces the law. The duty is owed as a public duty by all the citizens of the community to their fellow citizens. When the citizen subject to the order complies, the result is not the recovery of money by the peace officer or public authority, or of a judgment for money, nor is that the object of the whole process. Rather, it is simply the enforcement of the general law. The enforcing authority does not become a “creditor” of the citizen on whom the duty is imposed.
41The same could be said of the OSC when it commenced the CTO violation proceeding. The CTO itself imposed an obligation on Mr. Wing but it was an obligation which was entirely non-monetary in nature. When it commenced the CTO violation proceeding, the OSC was not seeking to enforce a debt. The CTO violation proceeding was commenced in the public interest to enforce the law, i.e., the CTO, to protect the integrity of the capital markets and for the public good. Applying the Thow and Terrace Bay analysis to the facts of this case, while part of the hearing was to determine whether a further administrative penalty for breach of the CTO would be in the public interest, no such penalty could exist until the OSC determined that: a) the CTO had been breached; and b) in the exercise of its discretion, it was in the public interest to levy a further administrative penalty. Nothing in the SCC’s decisions in Abitibi/Orphan Well detracts from the authority or logic of Thow and Terrace Bay. Further, the Trustee could not, in my view, have determined either of those questions under s. 135 of the BIA; they were only for the OSC to decide. The CTO violation proceeding was, therefore, not a contingent claim like any other contingent claim. Any administrative penalty in respect of the CTO violation proceeding could not come into existence until the OSC ordered it to be so.
42In addition, the OSC order levying the administrative penalty of $120,000 stipulated that it is “designated for allocation or use by the Commission in accordance with subsection 3.4(2)(b)(i) or (ii) of the” Securities Act; that is, for allocation to the benefit of third parties or for the education of investors or enhancing knowledge about the operation of the securities and financial markets. It is, therefore, doubly clear that the OSC was not acting as a creditor but for the enforcement of securities laws for the protection of the public when it initiated the CTO violation proceeding. This was in no way a financial claim for the benefit of the OSC, unlike the provincial government claim found as a fact by the application judge in Abitibi.
43Finally, the time relevant for the application of the three-part test in Abitibi is the date of bankruptcy. While the Terrace Bay decision was in respect of a stay of administrative proceedings (and, thus, concerned a time period before any findings or decision had been made by the regulatory authority), that does not matter to the analysis. Each of the three parts of the Abitibi test must be met in order for a claim to be provable in bankruptcy. Whether a regulatory authority is or is not a creditor at the date of bankruptcy does not change as a result of any subsequent decision to impose a monetary administrative penalty. Either the enforcement proceedings constitute the regulatory authority as a creditor at the date of bankruptcy or they do not. A monetary penalty imposed post-bankruptcy may well be become an enforceable debt and constitute the regulatory authority as a creditor once it is made but, in the circumstances of this case, that is a liability that arises post-bankruptcy and cannot, therefore, be a claim provable in bankruptcy.
44For these reasons, I find that the OSC was not a creditor at the date of bankruptcy. The first part of the Abitibi test has not been met. Accordingly, the administrative penalty in the CTO violation proceeding is not a claim provable in bankruptcy.
2. Was the Order for an Administrative Penalty and Costs an Obligation Incurred Before the Date of Bankruptcy?
45The OSC and the Trustee, again relying on Thow and Terrace Bay, argue that Mr. Wing did not become subject to any debt, liability or obligation until the Commission made its order requiring Mr. Wing to pay a penalty of $120,000 and costs of $5,000 on May 24, 2018, i.e., after the date of bankruptcy.
46Mr. Wing submits that his liability to the OSC was incurred before the date of his bankruptcy. This, he says, is because:
(a) all the events giving rise to his liability in the CTO violation proceeding, including the alleged breach of the CTO, occurred prior to the bankruptcy;
(b) the OSC had conducted an extensive investigation into Mr. Wing’s conduct, including his alleged breach of the CTO before his bankruptcy;
(c) the CTO violation proceeding, alleging the breach of the CTO and claiming an administrative penalty of up to $1 million, had been issued and served, and was outstanding, at the time Mr. Wing became bankrupt; and
(d) at the time of bankruptcy the only steps necessary to convert this contingent claim into a certain, monetary claim, were the hearing of the CTO violation proceeding, the finding of guilt and the administration of the penalty.
Analysis
47The same analysis which produces the conclusion that the OSC was not a creditor of Mr. Wing in respect of the CTO violation proceeding at the date of bankruptcy dictates the result under part two of the test as well.
48Mr. Wing’s obligation at the date of his bankruptcy was to comply with the CTO. The CTO violation proceeding was not commenced to enforce any debt but to enforce Mr. Wing’s obligation not to trade in securities. Mr. Wing’s liability in respect of the additional administrative penalty did not occur until the OSC determined that he had breached the CTO and that an administrative penalty in connection with that breach was in the public interest. That did not occur until well after the date of Mr. Wing’s bankruptcy. Accordingly, for these reasons, I conclude that the CTO violation proceeding did not constitute a debt or liability incurred before the date of bankruptcy. The second part of the Abitibi test has, therefore, not been established.
3. Was the Commission’s Claim Too Speculative and Remote on the Date of Bankruptcy?
49The OSC and the Trustee argue that the Commission’s mandate is to protect investors and promote fair and efficient capital markets and confidence in those markets. This mandate is supported by the grant of authority under s. 127 of the Securities Act to impose a wide variety of sanctions to deter conduct that is contrary to the public interest, including administrative penalties of up to $1 million per incident. Additional sanctions are available under s. 122 for failure to comply with orders of the Commission, including fines up to $5 million and imprisonment for up to five years. There is no formula for the Commission’s determination of an administrative penalty. The appropriate sanction depends on a variety of factors, including the seriousness of the misconduct, whether there were repeated breaches, whether the respondent realized any profit as a result of the misconduct and the level of administrative penalties imposed in other cases. With this wide array of discretionary remedial powers and potential outcomes, the Commission says, any outcome as to monetary value was remote or speculative until a settlement was reached or the hearing was held and the decision released making a finding of guilt and determining whether, and if so in what amount, an administrative penalty should be imposed.
50Mr. Wing argues that, at the date of his bankruptcy, the OSC had already conducted its investigation into his alleged misconduct. A notice of hearing had issued, alleging a breach of the CTO. The OSC was explicitly seeking an administrative penalty of up to $1 million against Mr. Wing for this breach. Further, an administrative penalty was the primary remedy that could be sought, as Mr. Wing was already subject to a permanent cease trade order and other sanctions. As the OSC’s May 24, 2018 decision itself said, “the only effective sanction available to the Commission under section 127 is an administrative penalty.”
51Relying on Chambre de la Securite Financiere v. Thibault, 2016 QCCA 1691, Mr. Wing submits that “the appropriate factual enquiry is whether, at the date of bankruptcy, the conditions were met in order to affirm that a [monetary] sanction would probably be imposed.” He argues that it was sufficiently certain at the date of bankruptcy that he would be subject to an administrative penalty – an administrative penalty of up to $1 million was neither remote nor speculative.
Analysis
52I am unable to agree with Mr. Wing’s argument on this issue. It is based entirely on hindsight. At the date of his bankruptcy, Mr. Wing had not admitted to a breach of the CTO. Whether such a breach could be proved and, if proved, whether it would be determined to be in the public interest to impose an administrative penalty in connection with that breach, were entirely matters for the OSC to decide. Further, the amount of any further administrative penalty was entirely discretionary to the Commission. These facts do not support the conclusion that a monetary sanction would probably be imposed.
53For these reasons, the third part of the Abitibi test has not been established either.
Is the OSC Estopped From Enforcement of the CTO Violation Order?
54On November 21, 2017, Conway J. granted an order allowing the OSC to proceed with the CTO violation hearing. In her endorsement, Justice Conway did not find it necessary to decide whether the CTO violation proceeding involved a claim provable in bankruptcy and was therefore stayed by s. 69(1)(a) of the BIA because she was prepared, in any event, to lift the stay to permit the CTO violation hearing to proceed. In coming to this conclusion, however, she said:
The OSC has agreed that it will not enforce any monetary penalty versus Mr. Wing until the trustee is discharged, but intends to proceed with its regulatory process with regards to the alleged non-compliance with the CTO.
55The OSC has, of course, concluded that hearing and has issued an order approving a settlement in which Mr. Wing admitted to contravening the Commission’s CTO and agreed to the imposition of monetary penalty of $120,000 and costs of $5,000. In this motion by the OSC, I have found that the monetary penalty is not a claim provable in bankruptcy.
56Mr. Wing maintains that he proceeded on the basis that the OSC’s agreement was true and binding. He argues that the Commission, having undertaken not to enforce the monetary penalty until the Trustee is discharged, cannot renege on that undertaking and seek to enforce the monetary penalty before then.
57I cannot accept this argument. In the Settlement Agreement signed by Mr. Wing and approved by the OSC, the Commission and Mr. Wing agreed that nothing in the settlement affected Mr. Wing’s or the OSC’s right to bring a motion for a determination as to whether the administrative penalty and costs arising out of the CTO violation proceeding were claims provable in bankruptcy. The parties agreed that a motion “shall be brought before the Ontario Superior Court of Justice (Commercial List)” to resolve this issue. The parties further agreed that, if the Court determined that the monetary penalty is not a claim provable in bankruptcy, Mr. Wing “shall pay the monetary penalty within 30 days of the Court issuing its decision.”
58While it may well be true that Mr. Wing relied upon the Commission’s undertaking as true and binding from November 21, 2017 to May 18, 2018 (the date of the settlement agreement), on May 18, 2018 Mr. Wing entered into a different agreement with the Commission. The new agreement was that Mr. Wing would pay the monetary penalty within 30 days of this Court making a determination that the monetary penalty is not a claim provable in bankruptcy. That agreement superceded and replaced the Commission’s undertaking. Having agreed with the Commission as a term of the settlement of the CTO violation proceeding to pay the monetary penalty within 30 days of this Court’s determination as noted above, Mr. Wing cannot now maintain that the Commission’s earlier undertaking not to enforce the monetary penalty until the Trustee’s discharge remains valid and binding. Accordingly, Mr. Wing has 30 days to pay to the Commission $125,000.
Conclusion
59For the reasons set out above, Mr. Wing’s motion to set aside the freeze direction is dismissed. The OSC’s motion for a declaration that the CTO violation order is not a claim provable in bankruptcy is granted. The administrative penalty and costs shall be paid within 30 days of the release of these Reasons.
Costs
60If the parties are unable to agree on the disposition of costs, written submissions seeking costs (limited to two typed, double-spaced pages) together with a bill of costs may be submitted within seven days of the release of these Reasons. A party wishing to respond to such a submission may do so by way of a written submission of the same length, submitted within a further seven days.
Penny J.
Date: July 8, 2019
1In doing so, he relied on the decision of Cumming J. in Air Canada (Re), who held that a potential regulatory liability became an “obligation” under the CCAA when the regulator issued the decision which imposed the penalty.