In Poonian v British Columbia (Securities Commission), 2024 SCC 28, the Supreme Court of Canada analyzed whether bankruptcy releases penalties imposed by legal violations.
Factual Background
The Poonians engaged in a scheme to manipulate the share price of a public oil and gas company and then sold the overpriced shares to investors. This scheme spanned from 2007 to 2009 and caused vulnerable investors to lose millions of dollars. In 2014, the British Columbia Securities Commission (the “Commission”) found the Poonians in violation of the provincial Securities Act. The Poonians were ordered to pay $13.5 million in administrative penalties (the “Administrative Penalty”), and a further $5.6 million representing the amounts obtained because of the scheme (the “Disgorgement Penalty”). In 2018, the Poonians went bankrupt.
Section 178(1) of the federal Bankruptcy and Insolvency Act lists certain debts that are not released through bankruptcy or exempt from discharge. The Supreme Court of British Columbia held that both penalties would be exempt from discharge as they fit under section 178(1)(a) –penalties imposed by a court, and under section 178(1)(e) – debt that results from obtaining property or services by false pretences or fraudulent misrepresentation. On appeal, the Appellant court held that while section 178(1)(a) did not apply because the penalties were not imposed by a court, section 178(1)(e) did apply. The Administrative Penalty and Disgorgement Penalty were both exempt from discharge.
Supreme Court of Canada Decision
Writing for the majority, Justice Côté held that neither penalty was exempt from discharge pursuant to section 178(1)(a) because the words “imposed by the court” do not capture order made by regulatory agencies or administrative tribunals that are registered as a judgment of a court. Further, the Administrative Penalty did not come within the ambit section 178(1)(e) because it did not result directly from a fraudulent scheme. The Disgorgement Penalty was captured by section 178(1)(e) because there was a direct connection between them and the fraudulent conduct. While the Administrative Penalty was released, the Disgorgement Penalty was deemed exempt from discharge.
This decision provides clarity on how bankruptcy can impact fraudulent debtors, and how penalties by regulatory bodies are interpreted under the Bankruptcy and Insolvency Act. For a more fulsome review of the court’s reasoning in Poonian v British Columbia (Securities Commission), read the complete decision here.
