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What Role has the Covid-19 Pandemic Played in Insolvency Filings?

Over the last 18 months, there has been a lot of conjecture as to what impact the Covid-19 pandemic was having on larger business and insolvency filings in particular. No question the pandemic has had a huge impact on the Canadian economy, yet insolvency filings are down year-over-year. Intuitively, one may leap to the conclusion that Covid-19 has, or would, lead to filings and there ought to have been, by now, many more insolvency filings than there have been. 

“The Canadian insolvency system, including the Office of the Superintendent of Bankruptcy (OSB), was prepared for a surge in insolvency filings as a result of the pandemic. However, other than a record number of filings under the Companies’ Creditors Arrangement Act (CCAA) in 2020, the number of filings has been far lower than both 2019 and 2009 levels. What remains to be seen is whether businesses that shut their doors during the pandemic will return to operations, make a formal insolvency filing or simply walk away. OSB will continue to monitor the situation closely,” says Elisabeth Lang, Superintendent of Bankruptcy. 

Earlier this year, the Insolvency Institute of Canada (IIC) Board of Directors convened a subcommittee to review restructuring filings filed with the OSB (( from March 1, 2020, to January 31, 2021 (either pursuant to the BIA or the CCAA). The IIC, working through the subcommittee, sought to identify those companies that were directly or partially affected by the COVID-19 pandemic and that resulted in the filing of an insolvency proceeding. 

The subcommittee, in conjunction with Henry Louis, editor, Insolvency Insider, created a database of all filings by type of filing, filing date, company name, and region. The data was further refined to reflect the larger filings in Canada and a survey was circulated to get at the root causes of the insolvency filings. The survey was conducted as a first step in obtaining data on the effect of the COVID pandemic on the restructuring industry in Canada, specifically in relation to the large corporate filings. 

So, what did this work show? 

The biggest takeaway is that Covid-19 has not yet had the massive impact that was expected and was the primary factor for the insolvency in only 15% of the filings. The pandemic was not the driving factor in over 85% of the cases but it was a contributing factor in just under half of all the large filings in the country. Put in other words, the pandemic seems to have helped tip over almost half of the large companies that filed. That is pretty significant. 

“What the survey doesn’t tell us, is the effect of the pandemic on micro, small and medium sized businesses across the country. We need to be careful not to draw overly-broad conclusions from the results of this particular survey. This is just a snapshot of one end of the business. A more indepth analysis would have to be conducted to get the full picture. It does, however, give us a solid baseline and we intend to re-run the survey in the next 12 months for comparative purposes,” says IIC President Robert Thornton. 

The IIC survey covers most of 2020, in which Canada’s GDP shrank 5.4%, the steepest annual decline since quarterly data were first recorded in 1961. With GDP predicted to rebound in 2021, it will be very interesting to see whether the Covid-19 pandemic plays a bigger role in 2021 filings. With the baseline in hand, we now have real data on the current impact that will help to us understand the impacts to come. 

The Insolvency Institute of Canada is Canada’s premier interdisciplinary forum for leadership and expertise in the field of commercial restructuring and insolvency. The IIC promotes excellence and collegiality among its members and thought leadership in the field of commercial restructuring and insolvency. Members of the IIC are drawn from the most senior and experienced professionals representing the insolvency community in Canada.