On December 6, 2023, the Supreme Court of Canada heard the appeal of Poonian v British Columbia Securities Commission, 2022 BCCA 274. In the case appealed from, the British Columbia Court of Appeal decided that an administrative monetary penalty levied by a securities commission related to fraud or false pretences survives bankruptcy under an exception to the ‘fresh start’ principle.
The British Columbia Securities Commission (BCSC) found that the Poonians engaged in market manipulation to inflate share prices, and ordered them to pay an administrative monetary penalty and a disgorgement order. Following the BCSC’s sanctions, the Poonians filed for a joint assignment in bankruptcy, allowing them to discharge these debts. The BCSC successfully challenged this discharge based on exceptions under section 178(1) of the Bankruptcy and Insolvency Act (BIA).
This decision conflicts with the Alberta Court of Appeal Decision, Alberta Securities Commission v Hennig, 2021 ABCA 411, where the Court viewed the exceptions under section 178(1) narrowly, so that a similar administrative monetary penalty would not survive bankruptcy. The Alberta Court of Appeal required the creditor to be the direct victim of the fraud, despite this language not appearing in the BIA.
The Alberta Securities Commission (ASC), represented by Dentons Canada LLP, was granted leave to intervene before the Supreme Court of Canada. Dentons’ Michael Beeforth, Brandon Barnes-Trickett and Raphael T. Eghan appeared on behalf of ASC. Dentons made submissions on why an administrative monetary penalty from a securities commission arising out of fraud or false pretences should survive bankruptcy. In particular, Dentons submitted that there is no statutory requirement or historical judicial interpretation to support the reasoning for the debtor to make fraudulent statements directly to the creditor for the exemption to apply, and further, that the risk of incentivizing bankruptcy increases exponentially when a debtor may commence a bankruptcy proceeding to escape liability for fraudulent conduct, which is the consequence of an unduly narrow interpretation of s. 178(1)(e).