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
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 2
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 3
OSB Vision, Mission and Mandate 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. 4 4
OSB Strategic Objectives 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. 5 5
OSB Main Activities 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 6 6
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. 7
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. 8
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 9
Canada’s Gross Domestic Product Evolution of Real GDP from January 2008 to August 2011 1,280 1,260 Billions of Dollars 1,240 1,220 1,200 1,180 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 1 1 1 1 8 9 0 0 0 1 1 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 - - - - - - - - - - - - - - - - - - - - - - n r y l p n r y l p r y l p r y l v v n v n u u u u a a a a a e o a e o a e o a a a a a M J M J M J M J J M S M S M S M N J N J N J Source: Statistics Canada 10
Unemployment Rate in Canada During the years in which Canada’s three most recent recessions occurred, the unemployment rate increased. 13 12 ) (% 11 te a nt R 10 e 9 m ploy 8 m 7 ne U 6 5 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 1 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 Years in which recession occurred Source: Statistics Canada 11
Debt Service Ratio Though overall debt has increased, the debt service Interest burden on household debt ratio has slipped slightly, aided by reduced bank 13 Ratio of Interest paid* by Household to PDI interest rates. 12 11 Household Effective interest rate 10 The interest burden on 9 household debt decreased 8 % offsetting the rise in 7 household indebtedness. 6 5 However, an increase in 4 3 interest rates would 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 increase the debt-service ratio, increasing total debt. *Interest paid on consumer credit and mortgage credit Source: Statistics Canada and Bank of Canada 12 12
Total Insolvency Volumes 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. 160 140 Volume (Thousands) 120 100 80 60 40 20 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Office of the Superintendent of Bankruptcy 13 13
Consumer and Business Insolvencies 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. 160 16 Consumer Insolvencies (Thousands) Business Insolvencies (Thousands) 14 140 12 120 10 Consumer 100 Insolvencies 8 80 6 60 4 Business Insolvencies 40 2 20 0 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 Source: Office of the Superintendent of Bankruptcy 14 14
Assets and Liabilities for Insolvent Consumers 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.* 18 16 14 Amount ($ billion) Consumer 12 Debtor Assets 10 8 6 Consumer Debtor 4 Liabilities 2 0 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 *Canadian average including both house and land from January 2004 to December 2010 Sources: Office of the Superintendent of Bankruptcy and Statistics Canada 15 15
Assets and Liabilities for Insolvent Businesses Average assets remain relatively stable but liabilities have been trending generally upwards since 2004. 12 10 Amount ($ billion) 8 Business Debtor Assets 6 4 Business Debtor Liabilities 2 0 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 Source: Office of the Superintendent of Bankruptcy 16 16
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. 1,800,000 160,000 Consumer Debt ($ millions) Consumer Filings (Volume) 1,600,000 140,000 1,400,000 1,200,000 120,000 1,000,000 100,000 800,000 600,000 80,000 400,000 60,000 200,000 0 40,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Consumer Debt Consumer Insolvency Source: Office of the Superintendent of Bankruptcy and Statistics Canada 17 17
Insolvencies Filed by Consumers 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%. 160 Thousands 140 120 100 Bankruptcies 80 Proposals 60 40 20 0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: Office of the Superintendent of Bankruptcy 18 18
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