Between February 2020 and January 2022, we authored three blog posts about whether Securities Commission-imposed administrative monetary penalties (AMPs) and disgorgement orders should be discharged in personal bankruptcies.
Those prior blog posts are linked here: February 6, 2020, March 4, 2021, and January 13, 2022.
The law governing the discharge of AMPs and other Securities Commission-imposed sanctions in personal bankruptcy was not always consistent across Canada. In particular, the British Columbia Court of Appeal held in Poonian v British Columbia (Securities Commission), 2022 BCCA 274 that certain AMPs and disgorgement orders for fraud and securities market manipulation were not discharged in personal bankruptcy by operation of s. 178(a)[1] and (e)[2] of the Bankruptcy and Insolvency Act (BIA). That decision distinguished and questioned the Alberta Court of Appeal’s earlier decision in Alberta Securities Commission v Hennig, 2021 ABCA 411, which reached the opposite result.
Leave to appeal to the Supreme Court of Canada (SCC) was granted in Poonian. The SCC’s decision[3] on the resulting appeal was released earlier today.
The SCC majority ruled that AMPs are not “imposed by the court” within the contemplation of s. 178(1)(a). They are instead imposed by the Securities Commission, even though they may subsequently be registered as court judgments.
Furthermore, AMPs arise from the imposition of a sanction by the Securities Commission and do not represent the value of the property that was obtained by false pretenses or fraudulent misrepresentations. They arise only indirectly from the fraudulent scheme itself. Thus, AMPs have an insufficient linkage to the fraud and its consequences to trigger an exemption from discharge under s. 178(1)(e).
Disgorgement orders are a different story. Like an AMP, a disgorgement order does not trigger s. 178(1)(a) because it is imposed by the Securities Commission, not a court. However, unlike an AMP, a disgorgement order arises directly from a fraudulent scheme and the value of the property wrongfully obtained by the bankrupt. That “direct link” is sufficient to trigger s. 178(1)(e), thereby exempting an AMP from discharge in personal bankruptcy under s. 178(1)(e).
The SCC majority held that s. 178(1)(e) can only be triggered if the bankrupt’s false pretences or fraudulent misrepresentation is proved to the court with “clear and cogent” evidence. The court cannot simply adopt the fraud finding of a Securities Commission and must make its own determination about the triggering (or not) of s. 178(1).
In the result, the SCC held that AMPs in the total amount of $13.5 million could be discharged in the Appellants’ personal bankruptcies. However, disgorgement orders in the total amount of approximately $5.6 million were not discharged (i.e. survived as liabilities despite the Appellants’ personal bankruptcies) because they arose directly from a proved fraudulent misrepresentation to investors from which the bankrupts obtained millions of dollars.
In today’s Poonian decision, the SCC provided definitive interpretations of ss. 178(1)(a) and (e) of the BIA to reconcile differing interpretations from the appellate courts of British Columbia (in Poonian) and Alberta (in Hennig). The consequence should be greater certainty and predictability in the law going forward.
[1] Section 178(1)(a) exempts from bankruptcy discharge “any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail”.
[2] Section 178(1)(e) exempts from bankruptcy discharge “any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation”.
[3] Poonian v. British Columbia (Securities Commission), 2024 SCC 28