Jan. 24, 2023
Professor published in Annual Review of Insolvency Law
"The Fraudulent Misrepresentation and False Pretences Exception to the Bankruptcy Discharge: Balancing the Debtor’s Fresh Start with Confidence in the Credit System" focuses on two recent appellate decisions—Alberta Securities Commission v Hennig and Shaver-Kudell Manufacturing Inc v Knight Manufacturing Inc—and their narrow interpretation of section 178(1)(e). In both Hennig and Shaver-Kudell, the courts expressed concern about broadening section 178(1)(e) and ruled that the exception to discharge did not apply, thereby providing for the release of the specific debts.
This article argues that in their efforts to narrow the exemption, the Hennig and Shaver-Kudell courts weakened section 178(1)(e) by setting up a straw man argument. Hennig and Shaver-Kudell’s concern about only capturing debts arising from fraudulent conduct and not debts arising from other types of dishonest conduct led them to unduly narrow the provision by reading in unreasonably restrictive requirements. Their interpretation created two problems. First, it failed to address the real issue, which is to ensure that a narrow interpretation of section 178(1)(e) also fulfills its purpose and aligns with broader commercial law principles. Second, it undermined the purpose of section 178(1)(e) by discharging debts that should have been captured by the provision.