Poonian v. British Columbia (Securities Commission), 2022 BCCA 274

August 24, 2022

Is a securities commission fine discharged in bankruptcy?

The British Columbia Securities Commission found that the Poonians had breached s. 57(a) of the British Columbia Securities Act by manipulating the share price of OSE Corp., an Ontario company whose shares traded on the TSXV, and selling overpriced shares to unsophisticated investors. It imposed sanctions against the Poonians in the amount of approximately $19 million.

The Commission then obtained an order declaring that the amounts owing by the Poonians were debts falling within s. 178 of the Bankruptcy and Insolvency Act and, for that reason, would not be released by an order of discharge. The Commission had argued that the debts in this case arose out of the Poonians’ fraudulent or dishonest conduct. The Poonians had argued that neither the Commission’s disgorgement orders nor the administrative penalties were a “fine, penalty, restitution order or other order … imposed by a court” under s. 178(1)(a) of the BIA because (a) that phrase could only refer to fines or penalties imposed in a criminal or quasi criminal proceeding; and (b) notwithstanding its registration with a superior court, an order of a tribunal is not a fine, penalty or restitution order “imposed by a court”.

The chambers judge held that a decision of a tribunal registered as a judgment of a superior court should be considered to be a fine, penalty or restitution order imposed by a court, and that the fines and the disgorgement orders in this case fell within the exemption defined by s. 178(1)(e). The Poonians appealed from the decision.

The Court of Appeal affirmed that the proper approach to interpreting the exemptions in s. 178(1) starts from the position that every debt is released on a discharge of the bankrupt unless one or more of s. 178(1)’s subsections clearly exempts the debt from release. The exemptions should be construed narrowly and applied only in clear cases. The more debts that survive discharge by falling within s. 178(1), the more difficult it becomes for a bankrupt debtor to be rehabilitated.

All of the exceptions in the section are based on what might be classed as an overriding social policy. In other words, they are the kinds of claims which society (through the legislators) considers to be of a quality which outweighs any possible benefit to society in the bankrupt being released of these obligations.

With respect to s. 178(1)(a), the Court was persuaded by authorities which held that this provision does not apply to orders made by administrative tribunals—even orders that are registered to become judgments of a court—because such judgments are not “imposed” by a court. The court merely upholds the tribunals decision to impose an administrative penalty or costs order. The chambers judge in this case erred in concluding that the debts were excepted from discharge pursuant to s. 178(1)(a). The provision is broad enough to include at least fines, penalties and restitution orders imposed by courts other than the superior courts of the provinces, but cannot be read so broadly as to include fines imposed by tribunals that are registered in a court. If Parliament intended to exempt fines or penalties imposed by tribunals from the rule in s. 178(2), it would have done so expressly.

With respect to s. 178(1)(e), the provision is a morality concept which looks at conduct. Certain kinds of conduct are unacceptable to society and a bankrupt will not be rewarded for such conduct by a release of liability. The Court noted that both the Commission and the chambers judge found that the debts arose from obtaining property or services by false pretenses or fraudulent misrepresentation. The evidence supported the conclusion that the judgment against the Poonians was founded upon the fact they had engaged in fraudulent misrepresentation and had obtained property as a result. After describing the “essence” of s. 178(1)(e) as “obtaining property through deceitful conduct”, the chambers judge held that its application in this case is “consistent with the overarching principle of s 178(1)(e), that a bankrupt who has profited from morally objectionable actions should not be shielded by discharge”. A debtor’s impugned behaviour need not satisfy the test for the tort of deceit; market manipulation can fall within s. 178(1)(e). The Court of Appeal saw no error in the chambers judge’s assessment.

Accordingly, the Court dismissed the appeal.

Judges: Harris, Willcock and Fenlon JJ.A.

Counsel: Cody G. Reedman of Reedman Law for the Poonians; and William L. Roberts; Laura L. Bevan and Sarah B. Hannigan of Lawson Lundell for the British Columbia Securities Commission

By Matilda Lici