In a post last year, we discussed the decision of the British Columbia Court of Appeal in Poonian v. British Columbia (Securities Commission), 2022 BCCA 274 in which the British Columbia Court of Appeal held that an administrative penalty by a securities commission relating to fraud survives bankruptcy. The penalty arose from findings made by the British Columbia Securities Commission that the debtor engaged in conduct to mislead the public about a company in order to influence its share price. The Supreme Court of Canada has now granted leave to appeal.

The general rule in bankruptcy is that a debtor receives a “fresh start” and is discharged from prior debts subject to certain exceptions. Subsection 178(1) of the Bankruptcy and Insolvency Act sets out eight classes of debts that are not released by an order of discharge including an exception for debts that arise from a fraudulent misrepresentation.

The BC decision in Poonian v. British Columbia (Securities Commission) directly conflicts with the Alberta Court of Appeal decision in Alberta Securities Commission v Hennig, 2021 ABCA 411 which found that similar type of penalty by Alberta’s Securities Commission did not survive bankruptcy. Ontario courts have also adopted a narrower approach in determining whether a claim should survive bankruptcy under the fraud exception.

The Supreme Court’s decision on whether a broad or narrow interpretation should be applied to the fraud exception will be significant for securities regulators across the country and the investors that they are mandated to protect from fraudulent practices.

With thanks to Anton Rizor for his assistance with the post.