Evidence of meeting #40 for Finance in the 43rd Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was information.
A recording is available from Parliament.
Liberal
The Chair Liberal Wayne Easter
We don't mind telling them on your behalf, not at all. This is the finance committee, not ISED. Don't worry about them.
Superintendent, Office of the Superintendent of Bankruptcy
I think the system works quite well in Canada. It's generally very positive and it's the envy of many countries.
Liberal
The Chair Liberal Wayne Easter
Okay. Thank you.
We will turn to Mr. Kelly and then go on to Mr. Fraser.
Go ahead, Pat.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Thank you, Mr. Chair.
Ms. Lang, in your opening remarks you mentioned that the number of filings had dropped after the pandemic began, or at least after the pandemic resulted in the shutdown of large swaths of the Canadian economy. You attributed this to two factors. You said that government supports were offsetting consumers and enabling them to avoid bankruptcy, and that there was forbearance from creditors.
You've been asked about this already, but I'd like a bit more detail about what that really looks like. We certainly want to avoid a catastrophic wave of bankruptcies, as they would cascade throughout the economy. We need to have things smoothed out over a longer period of time, but there are many types of forbearance from creditors that will not ultimately be helpful to the economy. Let's say a creditor business simply decides not to take up a collection action and writes off debt. Writing off a debt impacts their ability to rehire or hire more staff, to expand or to do any of the things that would require the money they had written off.
How much of the forbearance from creditors is simply the result of not having access to the court system right now or being able to delay an action? How much of this is simply bad debt that will ultimately result in further business failure?
Superintendent, Office of the Superintendent of Bankruptcy
Again, I don't have hard numbers on this kind of stuff, because these are people who have not filed yet. In my remarks, I suggested that these are some of the theories we would put out there, but it's hard to say with certainty.
I do believe that the courts have not been a factor, from what I've heard. They've largely been accessible when needed, so I would say that's not a factor.
I think the other key factor here is the level of uncertainty, not knowing what's coming around the corner. As things start to reopen and we see how businesses pivot or weather the storm, we'll see what the future will hold.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Did you mean that the uncertainty is a factor in people's decision to file now or not to file?
Superintendent, Office of the Superintendent of Bankruptcy
I meant not to file, and for creditors not to force a filing. If you have a relationship with a debtor and they may be able to reopen and succeed, then it's probably in your best interest to wait and see if they can do that successfully, rather than to force a denouement right now.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Right, but the creditor is still owed the money. Yes, if as a creditor you're capitalized well enough that you can allow the debtor time, that's obviously ideal, but it still has a negative ripple effect throughout the economy. That creditor has lost whatever other opportunity they have, whatever their business might be, to employ Canadians or pay their own bills.
At what point do you think some of this will likely come to a head and see, perhaps, increased filings, or give you confidence that there will not be significantly increased filings?
Superintendent, Office of the Superintendent of Bankruptcy
I think it's once we get to whatever the future normal state is going to be, with full reopening Canada-wide, when everybody's back to depending on their own incomes and profits for their businesses. That's probably when we'll start to see what the future will hold.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Of course, returning to where we were would be a return to a point when we had, in nominal terms, the highest number of filings in a decade. When adjusted for population growth, it's perhaps not quite as severe, but still higher than it had been in a number of years. That would be the normal we're returning to.
Superintendent, Office of the Superintendent of Bankruptcy
Well, one question will be whether consumer behaviour will change, whether people will start to do a bit better on the savings front, based on their experience through COVID.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Right, indeed. I guess perhaps I'm thinking more about business bankruptcies and the avoidance of those.
Perhaps, then, let's look prior to the pandemic, at the bankruptcy statistics you had in the first few months of 2020, the higher numbers you had seen. Were they in both the business and consumer categories?
Superintendent, Office of the Superintendent of Bankruptcy
No. BIA business filings have been on a steady decline since about 2012, I believe. On the CCAA, we see ebbs and flows over the years. Based on slide 17 in my deck that I've provided, we had 15 filings in Q4. CCAA numbers are never overly high, but 15 in a quarter is higher than normal. We had six in Q3 and four in Q2 of 2019.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
So consumer filings remain your primary concern and the primary vulnerability of the Canadian economy in your area.
Superintendent, Office of the Superintendent of Bankruptcy
Both have significant impacts. As you know, a single CCAA filing can involve a large number of employees, and then of course the majority of the numbers of pure filings are on the consumer side, so we pay attention to both.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Okay. You said that the courts and their ability to function through the pandemic are not a factor. It's just simply that the creditor's decision not to force issues is where this forbearance works itself out.
Superintendent, Office of the Superintendent of Bankruptcy
Yes, and as I mentioned, there are often some informal conversations going on. My understanding from that side of the business for licensed insolvency trustees and professionals is that they are very busy already, even if they may not have done a filing, and they may be finding solutions that avoid a filing altogether as well.
Liberal
The Chair Liberal Wayne Easter
Okay. Thanks, all of you.
We have Mr. Fraser, and then Mr. McLeod will wrap it up.
Mr. Fraser.
Liberal
Sean Fraser Liberal Central Nova, NS
Thanks so much. What a perfect place to pick up.
You mentioned that there may be solutions that can be found that avoid filings at all. I'm curious to know if you have thoughts on what the federal government might be able to do to encourage those sorts of informal conversations that lead to solutions and prevent filings in the first place.
Superintendent, Office of the Superintendent of Bankruptcy
I would think that would probably be outside of my mandate to opine upon.
Liberal
Sean Fraser Liberal Central Nova, NS
I struggle a little because you stick so hard to the data, and I think we're in the business of trying to find solutions before the problems arise, so maybe I'll approach it in a different way.
Before the pandemic, were there certain systemic bottlenecks that existed in the receivership and bankruptcy process? You mentioned that the courts to date have been holding up. I'm wondering, if there is an increase in the volume of filings.... Are there any sorts of links in the chain or steps along the critical path towards bankruptcy that were close to capacity and that might fail if there is an increase in bankruptcies?
Superintendent, Office of the Superintendent of Bankruptcy
Do you mean on the business side or on the consumer side?
Liberal
Sean Fraser Liberal Central Nova, NS
I was thinking on the business side, but I'm interested in both answers.
Superintendent, Office of the Superintendent of Bankruptcy
The CCAA process is very court-driven, so that might be something to watch, certainly. I know that the commercial courts in Canada are very busy. On the BIA business side, it's a little bit less so.
On the consumer side, I mentioned that we've made significant changes. There were changes in the 2009 legislation that increased the number of types of filings that could receive an automatic discharge, so the majority of those cases do not have to go to court. That was an important savings on court time.
Liberal
Sean Fraser Liberal Central Nova, NS
I'm curious. Obviously, the provincial court systems would be the place where most of these CCAA cases would end up in the first instance, but are there certain regions or even cities...? I used to practise in Calgary, which had a very well-orchestrated commercial bench. I moved back home a few years ago to small-town Nova Scotia, where I'm from, and we don't exactly have the same capacity within our court system here.
Have you ever done an analysis or do you have any views on which regions of the country may be busiest or—I guess this is a better way to put it—closest to capacity?