Finance Committee on July 7th, 2020

[Elisabeth Lang]

As far as I know, yes. We didn't delve into the details of why.

[Julie Dzerowicz, Liberal, Davenport, ON]

I am assuming there is also a way your office actually monitors the policies and procedural decisions of comparable organizations in other jurisdictions and what measures they are putting into place or starting to prepare for. Can you maybe talk a bit about that?

Is there anything you're noticing or is there some policy that's being put into place or are there things you're thinking about that we need to be looking at?

[Elisabeth Lang]

On the policy side, that would be largely the responsibility of my colleagues at ISED, but my office has been tracking the legislative changes that have been occurring in some countries. I should note that most countries have slight variations in their insolvency systems, so it's hard to make direct comparisons.

I think the number one change that would be applicable in Canada would be suspension of timelines, because insolvency legislation typically has required you to do certain things at certain times. The suspension of those timelines, in recognition of the fact that people were temporarily laid off or courts were temporarily closed, was probably the number one thing that would jump out at me.

The OSB was able to provide guidance to our stakeholders to address most of these issues and challenges. The courts have also been remarkably able to address the needs out there as well, so Canada has fared quite well in spite of some of the challenges.

[Julie Dzerowicz, Liberal, Davenport, ON]

That's great to hear.

I think this was alluded to, there's always a concern, as you're starting to lift some of the measures that we have in place, what the impact is going to be around bankruptcies or personal insolvencies. One of the things that you had mentioned is that there will be an increase of activity, but you don't think it will be sudden. Why don't you think it will be sort of automatic? Do you think it will take a certain period of time?

[Elisabeth Lang]

It seems to be, based on what we see from debtor behaviour, that a lot debtors try to do everything they possibly can before they decide to file for an insolvency. We have some excellent and reputable credit counsellors in Canada who are provincially regulated who can sometimes help somebody through budgetary problems and see them out the other side without having to file an insolvency. In some cases, people will just avoid the inevitable and not necessarily in the most healthy way. It's a very stressful situation for people. In some cases, we wish that they would come sooner.

There are tools that we want to put on our website this year to help people to understand, “In which category do I fall? Where should I go for help?”, so that they can go and get that help as quickly as possible.

[Julie Dzerowicz, Liberal, Davenport, ON]

Do you only offer that information in English and French?

[Elisabeth Lang]

We offer a lot of our products in English and French, but we have a “Consumed by Debt?” brochure that we have translated into—I won't get the number right—13 languages, give or take.

[Julie Dzerowicz, Liberal, Davenport, ON]

I think that's important.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you both. Right down to the second, Julie, you've got it timed.

Mr. Ste-Marie followed by Mr. Julian.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Ms. Lang, thank you for joining us. Thank you, as well, for your presentation at the beginning of the meeting. I must say hats off to the interpreters, who did an outstanding job keeping up with you.

I'd like to talk about the statistics you shared. My goodness, are they ever surprising. I am referring to the report entitled "Insolvency Statistics in Canada". The latest data cover the month of May. Because of the pandemic, I would have expected the number of insolvencies and bankruptcies to rise. You say, however, that the total number of insolvencies, bankruptcies and consumer proposals in Canada fell by 8.2% in May 2020, as compared with the previous month. We saw 3.9% fewer bankruptcies, and consumer proposals were down 10.3%. The total number of insolvencies filed in May decreased by 50.3%, compared with May 2019. From what I understand, that is half as many, even though we are in an economic crisis. In Quebec, according to your data, it is 64% fewer. That's incredible. In your report, the numbers follow the same trend.

I have some theories that might explain it, but I'd like you to tell us the reasons that might explain the decrease. I'm not sure whether you can answer me off-the-cuff. The Library of Parliament analysts indicate that it could be due to a slowdown in court activity. Are you in a position to comment on that? If not, how have the programs implemented by the government also made a difference?

Other theories are more worrisome. You mentioned the permission to miss the first three payments, but also the fact that financial institutions have entered into deferred payment agreements. However, if financial institutions have agreed to temporary deferrals, we can expect a huge number of insolvencies and bankruptcies in the fall. That is cause for concern.

What say you about these theories?

[Elisabeth Lang]

Thank you for the question.

I don't think the courts are really a factor. As a first step, insolvency cases in Canada are sent electronically to my office. For more serious cases involving the Companies' Creditors Arrangement Act, the process starts off in court. As I said, the courts have been available for serious cases. In my opinion, the other factors I brought up are more important, including creditor conduct and government payments. We'll see what happens when the measures end. I hope that most debtors will be able to get their jobs back. That would keep the situation from getting much worse. We'll have to wait and see what happens.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

All right. Thank you.

Your French is excellent, so kudos to you. Thank you for answering in my language.

To get back to the statistics, I would like to know whether you've obtained or seen the preliminary data for the month of June.

In your opinion, will this downward trend over the previous year continue? Are you able to comment on the preliminary data yet?

[Elisabeth Lang]

We are watching the numbers very closely. So far, they are continuing to drop considerably.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Okay, thank you.

I must say I'm very surprised, especially given the unemployment forecasts. They say the unemployment rate has increased and that, in the coming months, over the next year, even the next few years, it will be higher than it was before the pandemic.

Assuming that the unemployment forecasts are accurate, in your opinion, how can a higher unemployment rate go hand in hand with a lower number of bankruptcies?

[Elisabeth Lang]

I believe the government benefits are at play here. They are causing a bit of a hiatus. If the unemployment rate continues to rise, the number of bankruptcies is going to rise, that's for sure.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Okay, thank you.

A survey was done of U.S. economists. Nearly three-quarters of them, so 70%, expect a "square root-shaped" recovery, if you'll pardon the expression. The crisis is causing the economy to shrink; the economy then picks up again, but less vigorously, and then you get a kind of plateau at a lower level than before the crisis. We are talking about the U.S. economy, but the Canadian economy is linked to it in many ways.

Similarly, the day will come when special arrangements between financial institutions and businesses are no longer in place and exceptional government support measures have ended. If, by then, the economy is not at its full potential or at a level comparable to what it was before the pandemic, there will likely be a higher number of bankruptcies or defaults.

Is that how you see it?

[Elisabeth Lang]

It is possible, yes. We'll see. You never know. If we have a recession again, it is quite possible it could happen.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Okay, thank you.

Mr. Chair, as I have no further questions, I am going to give Ms. May my time for the second round.

[The Chair, Liberal, Wayne Easter]

Elizabeth's in luck today.

We'll go to Mr. Julian, who will be followed by Michael Cooper.

Peter.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you very much, Mr. Chair.

Thanks, Ms. Lang, for your presence here today. We hope your family is safe and healthy.

I also want to compliment you and the OSB for your very prompt action, moving quickly within a few weeks of this pandemic hitting to make sure that people had options, that they wouldn't be in a situation where they were basically in default of their arrangements around bankruptcy. It was a very significant step. I think it's important to underscore how prompt and effective your actions and the actions of the OSB were, and the potentially positive impacts. People will be able to come through this pandemic without the crushing financial loss that comes from bankruptcy and not having met the obligations that they had agreed to before the pandemic. I thank you for that.

I'm interested in knowing to what extent the OSB actually tracks the reasons why people run into financial difficulties. In Canada, we have the highest level of family debt in the industrialized world. The debt levels, as I'm sure you're aware, are similar to what we saw in 1929. We're seeing an increase in concentration of wealth in very few hands, where the top 1% have as much wealth as the bottom 80% of our country. Those figures, as well, are very similar to 1929. It's like government policies of both the former government and the current government are designed to provide the most support to the people at the top of the country and often forget about so many others.

To what extent does the OSB track the reasons around bankruptcy? I'm thinking of things like the end of a marriage, the death of a family member, a disability, illness and loss of a job. Do you have those statistics that indicate why people are finding themselves in financial difficulty?

[Elisabeth Lang]

First, thank you very much for your kind words. I truly appreciate those.

We do ask for the reason for insolvency. I will say with a bit of a caveat, however, that our forms are not perfect. That is an open text field, so I have some very talented people in my office who have to weed through that and pull the data as best they can. Form updates are something that we do want to work on to improve our data. I can tell you that in 2019, 69% of consumer insolvencies were due to what they called “financial mismanagement”, 37% were due to loss of income, 23% for medical reasons, 15% due to a relationship breakdown and 7% from a business failure. In that case, it would be somebody who filed a consumer insolvency but listed at least 50% or more of their debts relating to a business.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Obviously people are giving multiple reasons. There's some overlap there.

[Elisabeth Lang]

Yes, I guess.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Putting aside the issue of finances, what one could consider involuntary causes, so health issues or a breakdown in a relationship, do you have any estimate of the percentage of those who find themselves in bankruptcy because of those kinds of things that are beyond their control?

[Elisabeth Lang]

Yes, it's hard to isolate how that breaks out based on the data that I have today. Again, I feel like our forms might not be the perfect tool to give a great answer on that question, unfortunately.