Covid-19 creates Canadian Insolvency Crisis


Covid-19 creates Canadian Insolvency Crisis

The Government of Canada’s economic response to Covid-19 has been unprecedented.  CERB, CRB, CRSB, and CRCB along with payment deferral programs have provided Canadians breathing room to navigate their families through Covid-19 while reducing the stress and worries brought on by income reduction and job loss. The result of this supportive action is a dramatic decline in the volume of Canadians filing bankruptcies and consumer proposals, with steepest declines only marginally correcting over the past few months.

Governments around the globe have enacted aggressive responses to mitigate the impact of Covid-19 by changing and amending insolvency law through a variety of measures.  In Canada, the Superintendent of Bankruptcy (OSB) relaxed and modified requirements allowing licensed insolvency trustees to pivot to a more nimble business model, removing the requirements for in person meetings and softening the rigidity surrounding proposal payments and creditor meetings. Responding quickly, applying direct and effective changes that reduced the pressure created by Covid-19 on stakeholders.

As we enter month eight of the pandemic, with a more severe ‘second wave’ pounding at our door, we all wonder and worry at the longer term consequences. To date, statistics indicate, businesses and individuals have been keeping their heads above water, holding off from making difficult choices by the influx of financial support and reduced urgency around debt repayment.

Effectively, the economic response has changed the direction of consumer and business insolvencies as it shifted the way people work, live and manage their finances.

What does the future hold for the Canadian insolvency industry, is there a crisis within a crisis? There is plenty of economic data to support a massive surge of insolvencies in a post Covid era, with key sectors not recovering and jobs permanently disappearing. This potential spike in insolvencies appears inevitable with surreal estimates of a million insolvencies in the coming years. There are legitimate questions being raised by all stakeholders on the actual capacity of the existing insolvency system and infrastructure.

Can the LIT’s and the OSB’s current insolvency framework scale to meet that surge expected?

Or will the LIT, OSB, creditor and court infrastructures collapse if the volumes leap to 10000 estates per week from the current 2600 estates per week?  The impending result is an insolvency crisis that is beyond comprehension.

As our elected officials navigate through this uncharted territory, there seems to be growing energy and renewed efforts by our government to prioritize the public safety net with support systems such as a ‘Guaranteed Basic Income’ and ‘Affordable national child-care program’ .  These tools have capacity to boost the entire economy in a significant and meaningful way, in particular assist the most marginalized members of our community. These programs will inject life into the Canadian economy and create balance with a steady, manageable volume of insolvency filings. As an orderly and effective insolvency regime is a key component of a thriving economic environment.

With continued downward pressure, there has never been a more important time for the LIT industry to evaluate their processes and improve their efficiencies to remain competitive, and safeguard their businesses.

Aryza Canada remains your partner during these unprecedented times.