B.C. Court of Appeal upholds ruling that bankruptcy can’t erase millions in penalties

© Provided by Vancouver Sun The B.C. Court of Appeal has upheld a lower court decision that ruled bankruptcy will not erase $19 million in penalties owed by stock manipulators.

The B.C. Court of Appeal has upheld a lower court decision that ruled bankruptcy will not erase $19 million in penalties owed by stock manipulators.

Thalbinder (Thal) Singh Poonian and his wife, Shailu (Sharon) Poonian, owe the penalties to the B.C. Securities Commission as a result of a tribunal decision in 2015 that found they were involved in a pump-and-dump stock scheme where investors lost millions.

They have not paid any portion of the penalties.

The B.C. Securities Commission (BCSC) applied to the courts for an order that the amounts owed by the Poonians would not be released by any filing or discharge granted to them in bankruptcy. The legal action is part of a stepped-up effort in the past several years to increase penalty collection.

The B.C. Supreme Court ruled in 2021 in the BCSC’s favour, and the Poonians appealed that decision, arguing the lower court judge erred in his decision that the penalties issued by the tribunal fell under exemptions in the federal Bankruptcy and Insolvency Act that allow some debts such as judgments arising from fiduciary misappropriations to continue even after bankruptcy.

In a 28-page unanimous decision this month, the B.C. Court of Appeal dismissed the Poonians’ appeal, finding the exemptions do include the Poonians’ securities penalties because they resulted from the couple’s fraudulent conduct.

“I see no error in the chambers judge’s characterization of the acts giving rise to the underlying judgment, and I would not accede to the appellant’s characterization of this as behaviour ‘adjacent to fraud,’ wrote Court of Appeal Justice Peter M. Willcock.

The Appeal court, however, did not find that all orders and fines issued by the securities commission necessarily meet the exemption rules.

Cody Reedman, the Poonians’ Vancouver lawyer, said in an email Monday that they are currently reviewing the decision and their next options.

The B.C. Court of Appeal decision can be appealed to the Supreme Court of Canada, but Canada’s top court has to accept an appeal.

The Poonians had earlier sought bankruptcy as a way to clear their debts by having a trustee take control of their assets and sell them. The Poonians’ assets amounted to just $3,189.16.

Doug Muir, director of the B.C. Securities Commission enforcement division, said the regulatory agency pursued the application to continue the penalties after bankruptcy because they provide a deterrent effect.

“We don’t want the debtors to undermine the deterrent effect by simply evading the debt by going bankrupt,” Muir said.

He also noted that should the Poonians, or others, be in a position to pay later they want the ability to collect on the penalties, particularly as monies will be returned to victims.

In the past several years, the BCSC has taken legal efforts such as this one, and also begun using new legislative powers , to improve penalty collection. The legislative changes followed a 2017 Postmedia investigation that found more than half a billion dollars in penalties had gone uncollected by the BCSC in a decade.

Muir said the new powers are helping collection efforts but it will take some time for the full effect of new powers to be realized.

A BCSC tribunal issued the penalties to the Poonians after ruling they had been involved with others in securing a majority position in an oil and gas company, OSE Corp., inflating its stock price and then selling off the shares to unsophisticated investors between 2007 and 2009.

The price was inflated, including by trading among themselves. The stock was sold with the help of the Phoenix Group, which advised people in debt.

The investors with the Phoenix group alone lost $7.1 million.

The securities commission tribunal found that Thal Poonian was the mastermind and that his wife was extensively involved in the scheme.