The Supreme Court of Canada is pictured at sunset in Ottawa on Wednesday, Dec. 13, 2023. The Supreme Court of Canada has ruled that penalties levied by provincial securities regulators can be wiped out by bankruptcy, but orders to pay back ill-gotten gains are not. THE CANADIAN PRESS/Sean Kilpatrick
OTTAWA – The Supreme Court of Canada has ruled that people fined by provincial securities regulators can wipe out penalties through bankruptcy, but orders to pay back ill-gotten gains remain in place.
The ruling handed down today says penalties imposed by “administrative tribunals or regulatory agencies” are not covered by a list of exceptions in the Bankruptcy and Insolvency Act, which outlines specific types of debts that “survive bankruptcy.”
The case involved a B.C. couple, Thalbinder Singh Poonian and Shailu Poonian, who were ordered by the British Columbia Securities Commission to pay $13.5 million in administrative penalties and $5.6 million to repay those who lost money in a market manipulation scheme that “caused vulnerable investors to lose millions of dollars.”
A majority of the court ruled the penalties are not exempt because they aren’t imposed by a court, and don’t directly result from fraudulent conduct, but rather are made “indirectly” through the commission’s decision to sanction the Poonians.
The ruling says the orders to repay those who were bilked, however, are covered by the bankruptcy act’s exceptions because they are directly linked to a party’s misconduct, and “represent the value of the bankrupts’ fraud – the funds that they gained as a result of their market manipulation.”
The high court said if Parliament wanted fines or penalties levied by regulators like the commission to survive bankruptcy, “it could have said so expressly.”
This report by The Canadian Press was first published July 31, 2024
