A Deeper Dive on Business Bankruptcies/Proposals

Has your company experienced an uptick in once good paying commercial customers suddenly going past due, into CCAA protection or bankrupt? As a collection agency operating in Edmonton, Calgary and the GTA we can help.

Our intent is not to fear monger or spread doom and gloom. We’re not economists. Nor do we consider ourselves thought leaders by any stretch of the imagination however, our purpose is to hopefully provide some additional considerations for those who are interested in gaining the best possible understanding of our world beyond the headlines.

As reported by the ATB Owl last week (businesses) insolvencies are on the rise, but not as much as one might expect.

In the second quarter of 2018, businesses filed a total of 41 insolvencies. That’s up from only 31 in the first quarter of the year and represents the third highest level in a quarter since the downturn of 2014. On average about 30 businesses declared bankruptcy each quarter over the last four years.

But it’s not all bad news. The number of business that filed proposals with their creditors dropped in the second quarter to only ten. (A proposal is an offer to creditors to settle debts under conditions other than the existing terms and is often the precursor to outright bankruptcy).

Given the severity of the recession—and the modest rebound we are seeing—it may seem surprising that business bankruptcies have not risen more. Part of the reason for this may be the low interest rate environment that many businesses (and consumers) have enjoyed.

Perhaps, but we beg to differ by considering the following to make the analysis a little deeper and more meaningful.

• From our experience unlike individual consumers only those businesses with secured lenders (banks, credit unions, private equity firms) result in formal proposals or bankruptcies.

• What about the vast majority of businesses, most importantly SME’s, the backbone of the economy, that gain their operational funding via the business owner mortgaging their principal residence, maxing out credit cards and leaving unsuspecting trade creditors hanging when things go south? You don’t see these type of operations in formal business bankruptcies or proposals. Owners/entrepreneurs simply wind down the best they can and move on.

• The AB Economic Dashboard reports that business incorporations are up 1.9% from the same period a year earlier. Sounds encouraging however, what are the stats for the number of business incorporations not filing an Annual Return or being struck on a monthly basis for not filing a return for successive years? This would be a good indicator of a corporation no longer actually operating I would think in 99% of the cases. Why are there no stats published for this?

Taking a deep dive, although potentially scary, may very well allow us to arrive at a truer reality.