On July 31, 2024, the Supreme Court of Canada held that disgorgement orders made by the BC Securities Commission will continue to be enforceable after discharge from a bankruptcy. This decision recognizes that wrongdoers cannot escape disgorgement orders made by administrative tribunals for deceitful misconduct, clarifying that those found to have engaged in securities misconduct will not be able to escape all monetary sanctions by declaring bankruptcy.
Thalbinder and Sharon Poonian made assignments into bankruptcy after the Commission found them liable for devising and carrying out a market manipulation scheme that targeted investors already in financial distress. Some of these investors were convinced to unlock RSPs to invest in overpriced shares, resulting in significant financial loss. The Commission ordered the Poonians to pay sanctions totaling $19 million, including $5.6 million in disgorgement orders. However, once the Poonians made assignments into bankruptcy, it was assumed that once discharged, the Commission's orders would no longer be enforceable.
In 2021, the Commission, represented by Lawson Lundell, applied to the BC Supreme Court for orders that the Commission's penalties and fines would be exempt from discharge by bankruptcy. The BC Supreme Court sided with the Commission and ruled that, under sections 178(1)(a) and 178(1)(e) of the Bankruptcy and Insolvency Act, both the administrative penalty and the disgorgement orders were exempt from debt release. The Court of Appeal upheld the lower court's decision under s. 178(1)(e) of the BIA.
The SCC decided that in reference to section 178(1)(e), the disgorgement orders in this case "represent the value of the bankrupts' fraud – the funds that they gained as a result of their market manipulation", which presents a "direct link between the fraudulent conduct of the bankrupts and the commission's disgorgement orders." Disgorgement orders should therefore survive discharge from bankruptcy. The court also decided that the Commission's administrative penalties are not exempt from discharge from bankruptcy under s. 178(1)(e) or s. 178(1)(a).
Read the full decision here: Poonian v. British Columbia (Securities Commission), 2024 SCC 28
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