Background: Thalbinder Singh Poonian and Shailu Poonian were found by the BCSC to have engaged in a market manipulation scheme between 2007 and 2009, leading to significant financial losses for investors. The BCSC imposed $13.5 million in administrative penalties and approximately $5.6 million in disgorgement orders.

Legal Question: The issue was whether these penalties and orders could be discharged in bankruptcy under Section 178(1)(a) and (e) of the BIA. Section 178(1) outlines certain debts that cannot be discharged in bankruptcy, including those arising from fines, penalties, or fraudulent misrepresentation.

Supreme Court Decision:

• The court found that the disgorgement orders, which represent the amounts obtained through fraudulent conduct, could not be discharged. The court held that these orders were directly linked to the fraudulent misrepresentation and thus fell under the exception in Section 178(1)(e).
• However, the administrative penalties were deemed dischargeable. The court ruled that they did not result directly from the fraudulent conduct but from the Commission's decision to impose sanctions, which do not meet the criteria for non-dischargeability under Section 178(1).

Key Distinctions:

• For a debt to survive bankruptcy under Section 178(1)(a), it must be a fine or penalty “imposed by a court.” Since the BCSC is an administrative body, its orders do not qualify under this provision.
• Section 178(1)(e) requires a direct connection between the debt and fraudulent behavior, which applied to the disgorgement orders but not the administrative penalties.

In conclusion, the Poonians’ disgorgement orders survive bankruptcy, but their administrative penalties do not.