B.C. regulator seeks stronger investor protection laws after Supreme Court ruling

The chair of nan British Columbia Securities Commission is calling connected nan national authorities to alteration authorities to protect investors aft nan Supreme Court of Canada ruled fines issued by regulators tin beryllium wiped retired by bankruptcy.

Brenda Leong said nan precocious court’s ruling is simply a “set back,” but besides a “partial win” for investors because nan guidance to salary backmost ill-gotten gains — known arsenic disgorgement orders — will stay successful spot moreover aft an individual is discharged from bankruptcy.

“This committee has agelong advocated for changes to nan bankruptcy authorities successful bid to expressly exempt securities sanctions,” Leong said astatine a news convention Wednesday. “The national authorities needs to enactment now to make that alteration successful bid to protect investors successful this country.”

The ruling handed down Wednesday says penalties imposed by “administrative tribunals aliases regulatory agencies” are not covered by a database of exceptions successful nan Bankruptcy and Insolvency Act, which outlines circumstantial types of debts that “survive bankruptcy.”

The lawsuit progressive a B.C. couple, Thalbinder Singh Poonian and Shailu Poonian, who were ordered by nan British Columbia Securities Commission to salary $13.5 cardinal successful administrative penalties and to repay $5.6 cardinal to those who mislaid money successful a marketplace manipulation strategy that “caused susceptible investors to suffer millions of dollars.”

University of British Columbia rule professor Cristie Ford said nan precocious court’s ruling is simply a “bit of a rustle to nan securities committee and its expertise to protect investors successful nan superior markets.”

“It’s a powerful regulator pinch important priorities,” Ford said. “Sometimes, nan important priorities that securities regulators are trying to return attraction of tin tally up against different important priorities erstwhile it comes to different areas of law.”

Ford said provincial securities regulators are empowered to penalize bad actors successful nan country’s superior markets, but this lawsuit saw it tally up against a “deep law mobility astir what courts tin do and what administrative tribunals aliases nan executive tin do.”

She said location is simply a “considerable situation astir making judge that securities commissions tin beryllium arsenic effective arsenic imaginable wrong nan bounds of these constraints that are imposed by heavy law principles.

“It’s tricky,” she said.

A mostly of nan precocious tribunal ruled penalties are not exempt because they aren’t imposed by a court, and don’t straight consequence from fraudulent conduct, but alternatively are made “indirectly” done nan commission’s determination to punishment nan Poonians.

The tribunal ruled that if debts from administrative penalties did past bankruptcy by being covered by nan law’s exemptions, location would beryllium “potential to seizure debts aliases liabilities that are not nan nonstop consequence of deceit.”

The tribunal found, however, that disgorgement orders issued by nan regulator “represent nan worth of nan bankrupts’ fraud — nan costs that they gained arsenic a consequence of their marketplace manipulation.”

“There is truthful a nonstop nexus betwixt nan fraudulent behaviour of nan bankrupts and nan commission’s disgorgement orders,” nan ruling says.

The precocious tribunal said if Parliament wanted fines aliases penalties levied by regulators for illustration nan committee to past bankruptcy, “it could person said truthful expressly.”

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Amending Canada’s Bankruptcy and Insolvency Act, Ford said, would “be nan simplest hole for this problem,” but whether that will hap is unclear.

“While an amendment to nan bankruptcy enactment would hole this contiguous problem, it is benignant of much of a Band-Aid solution to a bigger problem, which is that securities committee priorities don’t ever fresh perfectly good pinch different parts of nan law,” she said.

Jassmine Girgis, a University of Calgary rule professor who specializes successful bankruptcy and insolvency law, said Wednesday that she understands nan group backmost for provincial securities commissions is significant.

“I consciousness for nan securities commission. I mean, these are monolithic penalties that they’re not getting, and it’s important that they are capable to cod their penalties because their functioning requires that,” she said. “But it’s besides really important that nan authorities beryllium publication nan measurement that it is written and according to its purpose.”

Girgis said nan precocious tribunal distinguished betwixt penalties issued by nan regulator and disgorgement orders, which corresponds pinch really overmuch was obtained done diplomatic behaviour and utilized to salary backmost amounts taken from victims.

“The securities committee is not nan unfortunate of nan fraud,” she said. “But that doesn’t mean that Parliament can’t revisit this and springiness thing to nan securities commission.”

Girgis said location had been competing findings by courts successful B.C., Alberta and Manitoba connected nan issue, and nan Supreme Court’s ruling Wednesday clears up those disagreements.

“It’s astir apt why nan Supreme Court wanted to perceive this, but possibly now that location has been a clear sound from nan Supreme Court, possibly nan national authorities would beryllium willing successful revisiting it,” Girgis said.

The Poonians, she said, still stay successful bankruptcy and haven’t been discharged, truthful their debts to nan B.C. Securities Commission and nan Canadian Revenue Agency stay successful spot for now, and successful bankruptcy law, “that’s nan value you salary for being a dishonest debtor.”

“These are long, hard-fought argumentation battles betwixt different stakeholders,” Girgis said. “It leaves nan tribunal successful a business wherever they’re expected to construe nan authorities and nan tribunal present did, which is great, and erstwhile they do that, past I conjecture it’s up to Parliament to consider: do we request to alteration something?”

This study by The Canadian Press was first published July 31, 2024.