A bankruptcy discharge releases the debtor from pre-bankruptcy debts or liabilities. The purpose is to give the debtor a “fresh start” from excessive debts that cannot be repaid, except in certain situations such as where the debt arises from deceitful or fraudulent conduct. In Poonian v. British Columbia (Securities Commission), the British Columbia Court of Appeal held that securities sanctions are excluded from bankruptcy discharge. This is significant because this decision diverges from other Canadian appellate decisions.


Thalbinder Singh Poonian and Shallu Poonian, along with three other individuals, contravened the market manipulation provision of the Securities Act. Among other sanctions, the British Columbia Securities Commission (Securities Commission) imposed a $7 million disgorgement order. The Poonians declared bankruptcy and unsuccessfully applied for an absolute discharge from bankruptcy. The Poonians claimed to be entitled to a fresh start whereas the Securities Commission successfully argued that they are unrepentant market manipulators and tax cheats.

An additional step taken by the Securities Commission was to seek an order declaring that the $7 million disgorgement order would not be released by their bankruptcy discharge if one was eventually granted. The judge held that the debts fell within s. 178(1)(a) Bankruptcy and Insolvency Act, which prevents a discharge from releasing the bankrupt from “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,…” Further, the judge ruled that the debts also fell within s. 178(1)(e), which disallows a discharge from releasing the bankrupt from “any debt or liability arising from obtaining property or services by false pretenses or fraudulent misrepresentation.”

The Poonians appealed the decision, arguing that neither section applied.

Analysis of Court of Appeal

The Court of Appeal found that the penalties could not survive bankruptcy under s. 178(1)(a). However, the Court of Appeal held that the penalties would survive bankruptcy under s. 178(1)(e). The Court affirmed that market manipulation falls within the ambit of fraudulent misrepresentation. Also, the court confirmed that the Poonians had obtained property in the form of millions of dollars through their fraudulent misrepresentations.

The Court of Appeal rejected the argument that only fraudulent statements made to a creditor would trigger the exemption. On this point, the Court of Appeal departed from the Alberta Court of Appeal’s decision in Alberta Securities Commission v Hennig where that court ruled that if a debt was owed to a securities commission, but the fraudulent statements were made to investors, then s. 178(1)(e) should not apply. Ontario courts have adopted a similarly narrow approach. In Goldstein (Re), the Ontario Superior Court held that the debtor must have defrauded the creditor seeking the declaration under s. 178. In the context of s. 178(1)(d), the Ontario Court of Appeal held in Korea Data Systems (USA), Inc. v. Aamazing Technologies Inc. that the section does not apply to creditors that the debtor did not have a direct fiduciary duty.

The British Columbia Court of Appeal applied a broader approach, holding that 178(1)(e) is not restricted to claims where the bankrupt made the fraudulent statement to the creditor. Since the Securities Commission can act as an intermediary on behalf of victims in certain circumstances, it ought to be included in the exemption. The Court of Appeal found that this interpretation was in line with the purpose of the exemptions of preventing abuse of the “fresh start” principle.

  • In British Columbia, a broader approach has been adopted to ensure that fraudulent actors cannot use the bankruptcy system to avoid their debts.
  • Given the conflicting appellate decisions across Canada, this case or one like it may be going to Supreme Court.


* With thanks to Anton Rizor for his assistance with this article.