The "fresh start" principle is a long-standing objective of Canada's Bankruptcy and Insolvency Act (the "BIA") that aims assist honest but unfortunate debtors by discharging debts owed to creditors. However, in the recent decision Poonian (Re), 2022 BCCA 274, the British Columbia Court of Appeal ruled that sanctions imposed by the British Columbia Securities (the "Commission") in respect of fraud related misconduct will survive any discharge under the BIA.
On August 29, 2014, the Commission found Thalbinder and Shailu Poonian (together, the "Poonians") contravened s. 57(a) of the Securities Act (the "Act") by manipulating the price of OSE Corp.'s shares. In particular, the Poonians undertook a complex series of trades, using pseudonyms and multiple nominee accounts. They artificially inflated the share price from $0.10 to $0.17 per share to a high of near $2.00. As part of the scheme, the Poonians paid commissions to the Phoenix Group, which in turn encouraged its clients, who were generally unsophisticated investors seeking to escape personal debt through investment in more high-yield vehicles, to purchase OSE shares at the artificially inflated prices. As a result of the misconduct, investors lost approximately $7,102,902.
As a result, the Commission imposed the following sanctions:
- The Poonians, along with three others, were found jointly and severally liable to pay a disgorgement order of $7,332,936 to the Commission;
- Thalbinder Poonian was ordered to pay an administrative penalty of $10 million; and
- Shailu Poonian was ordered to pay an administrative penalty of $3.5 million.
The Poonians appealed the sanctions and were granted leave to appeal the disgorgement order. The matter was remitted back to the Commission for reassessment. On February 14, 2018, the Commission heard submissions on the reassessment of the disgorgement order, however, before the panel rendered a decision, the Poonians filed a joint assignment into bankruptcy on April 20, 2018.
Despite the foregoing, on May 16, 2018 , the Commission reassessed the disgorgement order as follows:
a) Thalbinder Poonian was ordered to pay $1,319,167;
b) Shailu Poonian was ordered to pay $3, 149, 935; and
c) Thalbinder Poonian and one other were ordered to pay $1,126,260 on a joint and several basis.
The Commission registered the sanctions with the Supreme Court of British Columbia pursuant to s. 163 of the Act which gives them the same force and effect as a judgment of the Court.
On February 13, 2020, the Poonians brought an application for an absolute, or alternatively, a conditional discharge from bankruptcy under s. 172 of the BIA, that would relieve them of all of their debts, including those owed to the Commission. Their application was dismissed and the Poonian's appealed. Thompson J dismissed the appeal noting that the Poonians were not honest but unfortunate debtors, but rather "rogues who [were] clearly guilty of transgressions before the bankruptcy".
In the interim and in light of an appeal, the Commission then brought an application to exempt the debts owed by the Poonians from any discharge in reliance on s. 178(1) of the BIA. A chambers judge in the Supreme Court granted the application and ordered the sanctions were exempt from and survive any discharge under the BIA, pursuant to s. 178(1)(a) and (e). The Poonians appealed this decision on the basis that the trial judge erred in law by misapplying the principles and law pertaining to s. 178(1) (a) and (e) of the BIA.
In Poonian (Re), the Court of Appeal held that that the chambers judge erred in granting the exemption under s. 178(1)(a) of the BIA because a decision of a tribunal registered as a judgement is not imposed by a court. However, the Court upheld the exemption pursuant to s. 178(1)(e) of the BIA because the Poonian's engaged in fraudulent conduct. The Court further supported the chambers judge's interpretation that the overarching principle of s 178(1)(e) is that a bankrupt who has profited from morally objectionable actions should not be shielded by discharge.
In conclusion, this decision will bolster the Commission's efforts in collecting sanctions imposed by the tribunal. It also serve as a reminder to market participants that are found to have contravened the Act that filing for bankruptcy will not always result in a "fresh start".
A link to the decision can be found here: Poonian (Re), 2022 BCCA 274
Originally published by Whitelaw Twining
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