Trends in Insolvency in Canada Ginette Trahan Director General, - - PowerPoint PPT Presentation

Trends in Insolvency in Canada

Ginette Trahan Director General, Outreach Services Office of the Superintendent of Bankruptcy November 16, 2011 Receivables Management Association of Canada 2011 Credit Conference Toronto, Ontario

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Agenda

• Insolvency system in Canada
• Office of the Superintendent of Bankruptcy

(OSB)

• Some trends in the economy
• Some trends in insolvency
• An OSB initiative
• OSB Information and services
• Questions

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Legal Framework and Players in the System

• Important pieces of legislation dealing with insolvency:
• the Bankruptcy and Insolvency Act (BIA); and
• the Companies' Creditors Arrangement Act (CCAA).
• Main players in the Insolvency System
• Debtors – consumers or businesses
• Creditors – retailers, small businesses, banks, credit card

issuers, governments or individuals

• Trustees in Bankruptcy
• Courts
• Office of the Superintendent of Bankruptcy
• RCMP

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• Vision: Provide leadership in protecting the integrity of

the Canadian bankruptcy and insolvency system, a pillar of the marketplace.

• Mission: Contribute to a fair and efficient marketplace

by protecting the integrity of the bankruptcy and insolvency system for the benefit of investors, lenders, consumers and the public.

• Mandate: Supervise the administration of all estates

and matters under insolvency legislation.

OSB Vision, Mission and Mandate

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• Maintain an efficient and effective regulatory

framework.

• Promote awareness of the rights and responsibilities of

the stakeholders in the bankruptcy and insolvency system.

• Ensure trustee and debtor compliance with the

legislative and regulatory framework.

• Be an integral source of information on Canadian

insolvency matters.

OSB Strategic Objectives

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• Supervises the administration of all estates and matters under the

Bankruptcy and Insolvency Act (BIA)

• Maintains public records of insolvencies - BIA and CCAA
• Licenses private-sector trustees under the BIA (Trustees can be

monitors for CCAA filings)

• Directs risk-based compliance activities aimed at debtors,

trustees and creditors under the BIA

• Investigates all types of complaints under the BIA and complaints

against monitors under CCAA

• Issues investigation orders to OSB Special Investigation Units or

to the RCMP

OSB Main Activities

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Our Structure

• The OSB has

363 employees in 14 Offices across the country, including its Headquarters in Ottawa.

• Offices are

grouped under 3 Regional Structures.

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Bankruptcy and Insolvency Act (BIA)

• Proposals (arrangements) for settlement of debts
• Consumer proposal – available to individuals whose debts, excluding

mortgages, are $250,000 or less

• Division I proposal (commercial proposal) – available to businesses

and individuals with no limit to the amount owed

• Consumer Bankruptcy
• enables honest but unfortunate debtors to obtain a discharge from their debts

and start a new financial life

• Commercial Bankruptcy
• enables the return of assets to productive use
• Receiverships

The Superintendent of Bankruptcy is responsible for supervising the administration of Proposals and Bankruptcies under the BIA and for supervising some aspects related to Receiverships.

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Companies Creditors Arrangement Act (CCAA)

• Open to corporations owing more than $5 million wishing to

re-organize

• Provides a court-ordered stay on actions against the

corporation while under a CCAA process

• Reorganization is court supervised and the Court decides

all issues

• According to the Public Registry created in September 2009

to October 31, 2011, 78 CCAA filings were registered with the OSB, placing 478 companies under protection of the CCAA

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Evolution of Real GDP from January 2008 to August 2011

Canada’s Gross Domestic Product

Source: Statistics Canada

1,180 1,200 1,220 1,240 1,260 1,280 J a n

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M a r

• 8

M a y

• 8

J u l

• 8

S e p

• 8

N

• v
• 8

J a n

• 9

M a r

• 9

M a y

• 9

J u l

• 9

S e p

• 9

N

• v
• 9

J a n

• 1

M a r

• 1

M a y

• 1

J u l

• 1

S e p

• 1

N

• v
• 1

J a n

• 1

1 M a r

• 1

1 M a y

• 1

1 J u l

• 1

1 Billions of Dollars

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Unemployment Rate in Canada

Years in which recession occurred

During the years in which Canada’s three most recent recessions occurred, the unemployment rate increased.

Source: Statistics Canada

5 6 7 8 9 10 11 12 13 1 9 8 1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 2 2 2 4 2 6 2 8 2 1 U ne m ploy m e nt R a te (% )

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Debt Service Ratio

Source: Statistics Canada and Bank of Canada

Interest burden on household debt

3 4 5 6 7 8 9 10 11 12 13 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009

%

Ratio of Interest paid* by Household to PDI Household Effective interest rate

Though overall debt has increased, the debt service ratio has slipped slightly, aided by reduced bank interest rates. The interest burden on household debt decreased

• ffsetting the rise in

household indebtedness. However, an increase in interest rates would increase the debt-service ratio, increasing total debt.

*Interest paid on consumer credit and mortgage credit

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Total Insolvency Volumes

20 40 60 80 100 120 140 160 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Volume (Thousands)

Source: Office of the Superintendent of Bankruptcy

The total volume of insolvencies was relatively stable from 1988 to 2008, then filings increased sharply due to the recession. It has since started to fall but is still above the pre-recessionary level.

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Consumer and Business Insolvencies

20 40 60 80 100 120 140 160 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1 Consumer Insolvencies (Thousands) 2 4 6 8 10 12 14 16 Business Insolvencies (Thousands)

Consumer Insolvencies Business Insolvencies

Source: Office of the Superintendent of Bankruptcy

Consumer insolvencies increased during the recession and have since started to fall but remain above the pre-recessionary level. Business insolvencies have been trending downwards despite the economic downturn.

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Assets and Liabilities for Insolvent Consumers

2 4 6 8 10 12 14 16 18

1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1

Amount ($ billion)

Consumer Debtor Assets Consumer Debtor Liabilities

Sources: Office of the Superintendent of Bankruptcy and Statistics Canada

Average assets and liabilities remained stable until 2004 when they started to increase significantly. This coincided with an increase in real estate prices, which rose by 32.7% between 2004 and 2010.*

*Canadian average including both house and land from January 2004 to December 2010

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Assets and Liabilities for Insolvent Businesses

Source: Office of the Superintendent of Bankruptcy

Average assets remain relatively stable but liabilities have been trending generally upwards since 2004.

2 4 6 8 10 12

1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1

Amount ($ billion)

Business Debtor Assets Business Debtor Liabilities

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200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Consumer Debt ($ millions)

40,000 60,000 80,000 100,000 120,000 140,000 160,000

Consumer Filings (Volume)

Consumer Debt Consumer Insolvency

Consumer Debt and Consumer Insolvencies

Consumer debt for all Canadians and consumer insolvency volumes have both been on the rise during the last 20 years.

Source: Office of the Superintendent of Bankruptcy and Statistics Canada

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Insolvencies Filed by Consumers

20 40 60 80 100 120 140 160 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Thousands Bankruptcies Proposals

Source: Office of the Superintendent of Bankruptcy

Prior to legislative changes in September 2009, proposals accounted for 21.6% of consumer insolvencies. By August 2011, the proportion had climbed to 34.8%.

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Consumer Insolvencies by Age Group

5.80% 23.70% 29.20% 22.80% 18.60% 5.80% 23.10% 29.10% 23.20% 18.80% 5.40% 23.30% 28.30% 23.50% 19.50% 4.40% 22.30% 28.00% 24.70% 20.60% 3.40% 20.70% 27.20% 25.60% 23.10%

0% 5% 10% 15% 20% 25% 30% 35% 18-24 25-34 35-44 45-54 55+ Age Group Percentage

2006 2007 2008 2009 2010

Since 1998, the share of insolvent consumers aged less than 45 years has been decreasing steadily while that of those aged 45 years and more has been increasing continuously.

Source: Office of the Superintendent of Bankruptcy

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Top Reasons for Insolvency

Note: More than one reason can be given per filing. The percentage of proposals that cite mismanagement as a reason is higher than that of bankruptcies. Note 2: Reasons for insolvency provided by consumer insolvents and sole proprietorships.

Source: Office of the Superintendent of Bankruptcy

Between 2006 and 2010, close to 60% of the debtors declared mismanagement of funds as the main reason for insolvency.

Top Six Reasons for Insolvency 2006 - 2010

10 20 30 40 50 60 70 Mismanagement Insufficient Income Unemployment Health Reasons Relationship Breakdown Business Failure Reasons for Insolvency Percentage 2006 2007 2008 2009 2010

10 20 30 40 50 60

Mismanagement

• f Funds

Insufficient Income Unemployment Health Reasons Relationship Breakdown Business Failure

Reasons for Insolvency Percentage 2006 2007 2008 2009 2010

21 21 Canada: Consumer Bankruptcies and Consumer Proposals USA: Chapter 7, 11 and 13 Australia: Personal Bankruptcies (parts IV and XI), Personal Insolvency Agreements (Part X) and Debt Agreements (Part IX) UK: Bankruptcies and Individual Voluntary Arrangements (England and Wales, Northern Ireland), Sequestrations and Protected Trust Deeds (Scotland)

International Consumer Insolvency Volumes

20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 19941995199619971998199920002001200220032004200520062007200820092010 500,000 1,000,000 1,500,000 2,000,000 2,500,000 Canada Australia UK USA Canada, Australia and the UK USA

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International Consumer Insolvency Rates

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Canada Australia USA UK Canada: Consumer Bankruptcies and Consumer Proposals USA: Chapter 7, 11 and 13 Australia: Personal Bankruptcies (parts IV and XI), Personal Insolvency Agreements (Part X) and Debt Agreements (Part IX) UK: Bankruptcies and Individual Voluntary Arrangements (England and Wales, and Northern Ireland), Sequestrations and Protected Trust Deeds (Scotland) *Information on UK population only available for ages 16 years and older

(per 1,000 inhabitants aged 18* years and older)

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An OSB Initiative

• The Special Investigation Units (SIU) investigate

criminal activities and enforce provisions relating to offences under the BIA and Criminal Code in relation to bankruptcy and insolvency matters.

• First SIU was created in Montreal in 2003.
• In 2011, the OSB has created two new SIUs in Toronto

and Vancouver.

• All SIUs work in close collaboration with the RCMP.

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OSB Information and Services

• www.osb.ic.gc.ca
• Bankruptcy and Insolvency & CCAA

Records

• Unclaimed funds database
• Trustee Directory
• Statistics
• General information for debtors & creditors
• Bankruptcy abuse and fraud: criminal/penal

sentences

• 1-800 enquiries and complaints

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Questions?

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