Business Insolvencies Up

Canadian Business Insolvencies Were Up 33.8% YoY in Q1-22

Last week, Canadian Lawyer magazine reported business insolvency filings were up 1/3 over the same quarter last year. That’s the highest year over year increase in 31 years (i.e. since 1991). Bankruptcy filings are regulated and recorded by the Office of the Superintendent of Bankruptcy

By now, most COVID restrictions have been lifted, but so have the government support programs. That means businesses (and individuals) are on their own. Expect some hiccups as they adjust to the new realities like supply chain re-alignments, staffing and product shortages, a war in Ukraine, etc.

“With inflation now at a 30-year high, the conditions are ripe for further business insolvencies. Business owners and inhouse counsel should prepare by consulting with an insolvency professional as early as possible” said Jean-Daniel Breton, chair of the Canadian Association of Insolvency and Restructuring Professionals.

Those business owners who are susceptible to economic shifts should consider holding some or all of their financial assets with an insurance company. Provided their structured properly, assets held with an insurer (i.e. in an insurance contract) are typically exempt from creditors. That’s because government and the law decided long ago that “insurance” is a societal good. Most common law provinces are on side with the exemption.

In February 1996, the Supreme Court decided a landmark case in Royal Bank vs. North American Life Assurance Co. The case surfaced because a doctor in Saskatoon fell on hard times and couldn’t pay his rent. The landlord sued and the doctor declared bankruptcy. When creditors attempted to seize registered (RRSP) assets that were held with North American Life Insurance company, the Saskatchewan court “exempted” these assets. The case was appealed by the Royal Bank of Canada all the way to the supreme court (seems lenders don’t like the idea of some assets being exempted – especially by life insurance companies).

In their ruling, the Supreme Court of Canada based their conclusion on three critical issues:

#1 – The assets in question were governed by provincial Life Insurance legislation.

#2 – The owner had designated a preferred class of beneficiary (i.e. family member).

#3 – There was NO evidence of a “fraudulent conveyance.”

Viewers may want to view this You-Tube video…