As we discussed in a previous post, administrative penalties levied by securities commissions may survive a discharge in bankruptcy. A recent decision of the Supreme Court of British Columbia (Court), Poonian (Re), 2020 BCSC 547 (Re Poonian), highlights that in addition, such administrative penalties may also prevent a discharge from bankruptcy altogether.
In Re Poonian, the Court denied an attempt by Thalbinder Singh Poonian and Shailu Poonian (the Applicants) to obtain a discharge from bankruptcy under the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 (BIA).
The Applicants made a joint statement into bankruptcy on April 20, 2018 following a finding in August 2014 that they had engaged in market manipulation practices. At that time, their combined debts were valued at over $25 million, a majority of which were owed to the British Columbia Securities Commission and the Minister of National Revenue (MNR).
The Court refused to grant either an absolute discharge or a suspended discharge to the Applicants in light of the nature and extent of their liabilities.
The Court found that an absolute discharge should be refused in this case, as the Applicants' liability arose from serious misconduct, including "pumping up the price of the shares of a publically-traded company and then offloaded those shares at inflated prices to unsophisticated investors with financial problems" (leading to the administrative penalties) and unreported income (leading to the MNR liabilities).
Where an absolute discharge is unavailable, a debtor may seek a conditional discharge (conditional on payment of a certain sum, which may be substantial), or a suspended discharge, which suspends the operation of an absolute discharge for a specified time. A suspended discharge may be granted where the debtor has no ability to pay, and is consistent "with the two purposes of the BIA of rehabilitating the bankrupt and upholding the integrity of the bankruptcy system" (see para. 58 of the decision)
Holding that the BIA is not intended "to cleanse those who contravene the Securities Act of the fiscal consequences of their actions",(see para. 63 of the decision) the Court also refused to grant a suspended discharge.
This decision emphasizes the difficulty in avoiding liability for administrative penalties imposed by a securities regulator, and that individuals subject to such penalties may ultimately be refused a "fresh start" even through the bankruptcy process.
The author would like to thank Alexandra David, articling student, for her contribution to this article.
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