Do Securities Commission Debts Survive a Bankruptcy Discharge? An Analysis of Poonian v. British Columbia (Securities Commission) (BCCA)

Abstract

The Bankruptcy and Insolvency Act (“BIA”) allows certain debts to be discharged at the end of the bankruptcy process. This discharge achieves one of the BIA’s objectives by offering individual debtors a “fresh start” to rehabilitate and become productive members of society. However, the fresh start is not an absolute right. Parliament has enacted a series of exceptions to the discharge in section 178(1) of the BIA. As a counterweight to the fresh start principle, these exceptions ensure that debtors who engage in certain wrongful conduct do not benefit from the protections afforded by the bankruptcy regime. Interpreting these exceptions can be challenging, however, as a proper interpretation must necessarily balance the fresh start principle with creditors’ rights in order to maintain confidence in the credit system.

This case comment considers an important relationship between the BIA objectives and provincial securities law. In Poonian v. British Columbia (Securities Commission) (“Poonian”) the British Columbia Securities Commission had obtained multimillion dollar disgorgement orders and ordered administrative penalties against the bankrupts, the Poonians, for their market manipulation. The British Columbia Court of Appeal determined that these debts survived a bankruptcy discharge under the section 178(1)(e) exception, which provides that an order of a discharge does not release the bankrupt from “any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation….”. Leave to appeal the Poonian decision has been granted. Given the divergent decisions at the provincial courts of appeal on the section 178(1)(e) exception to the bankruptcy discharge, this is an area that could use some clarity from the Supreme Court of Canada though the authors of this paper argue that this matter is best resolved by Parliament in the form of a statutory amendment.

This comment provides an overview of the Poonian case and discusses how the court expanded section 178(1)(e) in a way that it is inconsistent with prior case law.

Keywords: bankruptcy, insolvency, discharge, fresh start

JEL Classification: K35, K22