The chair of the British Columbia Securities Commission is calling on the federal government to change legislation to protect investors after the Supreme Court of Canada ruled fines issued by regulators can be wiped out by bankruptcy.

Brenda Leong said the high court害羞草研究所檚 ruling is a 害羞草研究所渟et back,害羞草研究所� but also a 害羞草研究所減artial win害羞草研究所� for investors because their direction to pay back ill-gotten gains 害羞草研究所� known as disgorgement orders 害羞草研究所� will remain in place even after an individual is discharged from bankruptcy.

害羞草研究所淭his commission has long advocated for changes to the bankruptcy legislation in order to expressly exempt securities sanctions,害羞草研究所� Leong said at a news conference Wednesday. 害羞草研究所淭he federal government needs to act now to make that change in order to protect investors in this country.害羞草研究所�

The ruling handed down Wednesday says penalties imposed by 害羞草研究所渁dministrative tribunals or regulatory agencies害羞草研究所� are not covered by a list of exceptions in the Bankruptcy and Insolvency Act, which outlines specific types of debts that 害羞草研究所渟urvive bankruptcy.害羞草研究所�

The case involved a B.C. couple, Thalbinder Singh Poonian and Shailu Poonian, who were ordered by the British Columbia Securities Commission to pay $13.5 million in administrative penalties and $5.6 million to repay those who lost money in a market manipulation scheme that 害羞草研究所渃aused vulnerable investors to lose millions of dollars.害羞草研究所�

University of British Columbia law professor Cristie Ford said the high court害羞草研究所檚 ruling is a 害羞草研究所渂it of a blow to the securities commission and its ability to protect investors in the capital markets.害羞草研究所�

害羞草研究所淚t害羞草研究所檚 a powerful regulator with important priorities,害羞草研究所� Ford said. 害羞草研究所淪ometimes, the important priorities that securities regulators are trying to take care of can run up against other important priorities when it comes to other areas of law.害羞草研究所�

Ford said provincial securities regulators are empowered to penalize bad actors in the country害羞草研究所檚 capital markets, but this case saw it run up against a 害羞草研究所渄eep constitutional question around what courts can do and what administrative tribunals or the executive can do.害羞草研究所�

She said there is a 害羞草研究所渃onsiderable challenge around making sure that securities commissions can be as effective as possible within the bounds of these constraints that are imposed by deep constitutional principles.

害羞草研究所淚t害羞草研究所檚 tricky,害羞草研究所� she said.

A majority of the high court ruled penalties are not exempt because they aren害羞草研究所檛 imposed by a court, and don害羞草研究所檛 directly result from fraudulent conduct, but rather are made 害羞草研究所渋ndirectly害羞草研究所� through the commission害羞草研究所檚 decision to sanction the Poonians.

The court ruled that if debts from administrative penalties did survive bankruptcy by being covered by the law害羞草研究所檚 exemptions, there would be 害羞草研究所減otential to capture debts or liabilities that are not the direct result of deceit.害羞草研究所�

The court found, however, that disgorgement orders issued by the regulator 害羞草研究所渞epresent the value of the bankrupts害羞草研究所� fraud 害羞草研究所� the funds that they gained as a result of their market manipulation.害羞草研究所�

害羞草研究所淭here is therefore a direct link between the fraudulent conduct of the bankrupts and the commission害羞草研究所檚 disgorgement orders,害羞草研究所� the ruling says.

The high court said if Parliament wanted fines or penalties levied by regulators like the commission to survive bankruptcy, 害羞草研究所渋t could have said so expressly.害羞草研究所�

Amending Canada害羞草研究所檚 Bankruptcy and Insolvency Act, Ford said, would 害羞草研究所渂e the simplest fix for this problem,害羞草研究所� but whether that will happen is unclear.

害羞草研究所淲hile an amendment to the bankruptcy act would fix this immediate problem, it is sort of more of a Band-Aid solution to a bigger problem, which is that securities commission priorities don害羞草研究所檛 always fit perfectly well with other parts of the law,害羞草研究所� she said.

Jassmine Girgis, a University of Calgary law professor who specializes in bankruptcy and insolvency law, said Wednesday that she understands the set back for provincial securities commissions is significant.

害羞草研究所淚 feel for the securities commission. I mean, these are massive penalties that they害羞草研究所檙e not getting, and it害羞草研究所檚 important that they are able to collect their penalties because their functioning requires that,害羞草研究所� she said. 害羞草研究所淏ut it害羞草研究所檚 also really important that the legislation be read the way that it is written and according to its purpose.害羞草研究所�

Girgis said the high court distinguished between penalties issued by the regulator and disgorgement orders, which corresponds with how much was obtained through deceitful conduct and used to pay back amounts taken from victims.

害羞草研究所淭he securities commission is not the victim of the fraud,害羞草研究所� she said. 害羞草研究所淏ut that doesn害羞草研究所檛 mean that Parliament can害羞草研究所檛 revisit this and give something to the securities commission.害羞草研究所�

Girgis said there had been competing findings by courts in B.C., Alberta and Manitoba on the issue, and the Supreme Court害羞草研究所檚 ruling Wednesday clears up those disagreements.

害羞草研究所淚t害羞草研究所檚 probably why the Supreme Court wanted to hear this, but maybe now that there has been a clear voice from the Supreme Court, maybe the federal government would be interested in revisiting it,害羞草研究所� Girgis said.

The Poonians, she said, still remain in bankruptcy and haven害羞草研究所檛 been discharged, so their debts to the B.C. Securities Commission and the Canadian Revenue Agency remain in place for now, and in bankruptcy law, 害羞草研究所渢hat害羞草研究所檚 the price you pay for being a dishonest debtor.害羞草研究所�

害羞草研究所淭hese are long, hard-fought policy battles between different stakeholders,害羞草研究所� Girgis said. 害羞草研究所淚t leaves the court in a situation where they害羞草研究所檙e supposed to interpret the legislation and the court here did, which is great, and once they do that, then I guess it害羞草研究所檚 up to Parliament to consider: do we need to change something?害羞草研究所�

Darryl Greer, The Canadian Press