On March 31, 2023, Canada’s top court granted leave to appeal from the B.C. Court of Appeal’s decision in Poonian v. British Columbia (Securities Commission) that a securities commission administrative penalty relating to fraud or obtaining money under false pretenses survives bankruptcy under s.178(1)(a) of the Bankruptcy and Insolvency Act.
Once the Supreme Court of Canada weighs in on this issue, its decision will be a significant one for securities regulators across Canada – as it will either grant or deny them another arrow in their quiver to pursue respondents who try to escape paying fines by going bankrupt. In particular, individuals and corporations saddled with large fines from securities regulators have traditionally been able to have those fines extinguished if they went bankrupt – even where fraud may have been involved. In fact, very shortly after the Poonian v. B.C. decision was released by the B.C. Court of Appeal, its counterpart in Alberta decided that an Alberta Securities Commission penalty against Theodor Hennig did not survive bankruptcy under s.178(1)(a) of the BIA. In that case, the Alberta Court of Appeal found that fines, penalties and costs orders of regulatory bodies are not “imposed by a court” under s.178 of the BIA and therefore cannot survive bankruptcy under that section – regardless of whether the conduct to which they pertain would otherwise fall under s.178(1)(a). The Alberta Court of Appeal in Hennig very pointedly observed that s.178(1)(a) of the BIA does not contain any reference to regulatory fines and it refused to interpret that section to make it cover regulatory fines – even fines that are registered as court judgments after they are levied.
It remains to be seen whether the Supreme Court of Canada will agree with the B.C. approach and expand s.178 of the BIA to cover regulatory penalties that are registered as judgments, or adopt the Alberta approach and find that the failure of s.178 of the BIA to expressly reference regulatory penalties means that they are not covered and do not survive bankruptcy. Regardless of what is decided, the decision in this case will be of great interest to regulators across Canada – and to many of those they regulate.