Trends in Insolvency in Canada

Ginette TrahanDirector General, Outreach ServicesOffice of the Superintendent of BankruptcyNovember 16, 2011

Receivables Management Association of Canada 2011 Credit ConferenceToronto, 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

66

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

Jan-08

Mar-08

May-08

Jul-0

8Sep

-08Nov

-08Ja

n-09Mar-

09May

-09Ju

l-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-1

0Sep

-10Nov

-10Ja

n-11Mar-

11May

-11Ju

l-11

Bill

ions

of D

olla

rs

11

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

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010Une

mpl

oym

ent R

ate

(%)

1212

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 offsetting 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

1313

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

Volu

me

(Tho

usan

ds)

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

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Con

sum

er In

solv

enci

es (T

hous

ands

)

0

2

4

6

8

10

12

14

16

Bus

ines

s In

solv

enci

es (T

hous

ands

)

ConsumerInsolvencies

BusinessInsolvencies

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

0

2

4

6

8

10

12

14

16

18

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Am

ount

($ b

illio

n) ConsumerDebtorAssets

ConsumerDebtorLiabilities

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

1616

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.

0

2

4

6

8

10

12

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Am

ount

($ b

illio

n)

BusinessDebtorAssets

BusinessDebtorLiabilities

1717

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,0001,800,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Cons

umer

Deb

t ($

mill

ions

)

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Cons

umer

Fili

ngs

(Vol

ume)

Consumer Debt

ConsumerInsolvency

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

1818

Insolvencies Filed by Consumers

0

20

40

60

80

100

120

140

160

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Thou

sand

s

BankruptciesProposals

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

%

23.7

0%

29.2

0%

22.8

0%

18.6

0%

5.80

%

23.1

0%

29.1

0%

23.2

0%

18.8

0%

5.40

%

23.3

0%

28.3

0%

23.5

0%

19.5

0%

4.40

%

22.3

0%

28.0

0%

24.7

0%

20.6

0%

3.40

%

20.7

0%

27.2

0%

25.6

0%

23.1

0%

0%

5%

10%

15%

20%

25%

30%

35%

18-24 25-34 35-44 45-54 55+

Age Group

Perc

enta

ge

20062007200820092010

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

2020

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

0

10

20

30

40

50

60

70

Mismanagement Insufficient Income Unemployment Health Reasons RelationshipBreakdown

Business Failure

Reasons for Insolvency

Per

cent

age

20062007200820092010

0

10

20

30

40

50

60

Mismanagementof Funds

InsufficientIncome

Unemployment Health Reasons RelationshipBreakdown

Business Failure

Reasons for Insolvency

Perc

enta

ge

20062007200820092010

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Canada: Consumer Bankruptcies and Consumer ProposalsUSA: Chapter 7, 11 and 13Australia: 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

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

199419951996199719981999200020012002200320042005200620072008200920100

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Canada AustraliaUK USA

Can

ada,

Aus

tral

ia a

nd th

e U

K

USA

2222

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 AustraliaUSA UK

Canada: Consumer Bankruptcies and Consumer ProposalsUSA: Chapter 7, 11 and 13Australia: 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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