Rabu, 05 Agustus 2020

A record number of companies have sought creditor protection under COVID-19 — and more are on the way - CBC.ca

The number of large Canadian businesses seeking protection from creditors hit its highest point in more than a decade in May and June, and experts say the trend will likely continue because of COVID-19.

Under a Canadian law, the Companies' Creditors Arrangement Act, companies that owe at least $5 million can file for protection from their creditors to either restructure the business and continue to exist on new financial terms, or supervise an orderly wind-down of the business and sell off assets to pay back anyone it owes money to.

Similar to so-called "Chapter 11" bankruptcy filings in the U.S., CCAA proceedings are typically used as a last resort for companies that have run out of options and time.

When lockdowns because of COVID-19 were implemented in Canada in March, businesses had to adapt on the fly to stay open and keep generating sales. Companies that were in good shape before the pandemic were better able to handle that transition, generally speaking. But much like the virus itself, the economic toll of COVID-19 has been heaviest on companies with pre-existing conditions.

A record 10 companies began CCAA proceedings in May — followed by a new record of 12 companies in June. Both figures best the previous high of nine seen in December 2011 and the eight hit in in the depths of the financial crisis in October 2009. The number fell back to 4 in July but that's still above the 10 year average of about three per month, according to a database maintained by the Office of the Superintendent of Bankruptcy Canada.

Many of the recent restructurings are faceless numbered companies, but a slew of high-profile insolvencies and bankruptcies in Canada have made headlines since COVID-19 began, including clothiers Reitmans, and Frank & Oak, shoe seller Aldo, hot drink seller DavidsTea, entertainment company Cirque Du Soleil, travel agency FlightHubvarious oil companies and even a Christian charity.

That's all in just a few short months. And that list that doesn't even include major U.S. names like Chesapeake Energy, J Crew, Neiman Marcus, Brooks Brothers, Pier 1 and Hertz.

Restructuring and insolvency lawyer Karen Fellowes with firm Stikeman Elliott says COVID-19 is the catalyst for the sudden surge, but many of the victims already had problems.

"They were already in financial trouble going into COVID and then COVID just exacerbated the situation," she said in an interview.

Fellowes says CCAA filings typically aren't initiated by companies themselves being prudent. Rather, they're driven by lenders saying "enough is enough," causing the company to run to the CCAA in favour of other even worse options. Doing nothing at all can often give lenders the power to implement drastic measures, such as locking an insolvent company out of its offices, factories and stores, or even seizing assets and inventory to sell off to repay debts.

 But Fellowes has seen a few of what she calls "opportunistic" filings of late by companies trying to blame unrelated problems on the pandemic.

"Some companies struggling are saying, 'Here's an opportunity for us to just file for creditor protection, clean up our balance sheet, restructure, recapitalize and blame it all on COVID,'" she said.

The next domino

Retailers and the energy sector in Calgary, where Fellowes is based, have drawn much of the attention, but there's one sector that she's watching closely in the coming months: real estate.

"I've always been worried about the real estate sector, frankly, and miraculously ... we haven't seen the big foreclosures we haven't seen the big failures of real estate developments, yet," she said.

Government programs aimed at helping to pay rents to commercial landlords and bank programs allowing tens of thousands of Canadians to defer paying their mortgages are set to expire in the coming months, which makes the sector one to watch as we move into the fall.

Indeed, there's evidence that massive government bailouts and income supports are having their desired effect of keeping people solvent as personal bankruptcies have plunged to a record low under COVID-19, but on the corporate side it's a much different story.

"People in our world are really thinking that right now. This summer is calm before the storm," she said.

While bankruptcies and restructurings are obviously disruptive and painful as they happen, Fellowes said ultimately they can be good for individuals, companies and the economy because they are designed to preserve value and useful assets from being wasted.

"A bankruptcy is liberating good assets from bad management," she said.

Let's block ads! (Why?)


https://news.google.com/__i/rss/rd/articles/CBMiRWh0dHBzOi8vd3d3LmNiYy5jYS9uZXdzL2J1c2luZXNzL2NjYWEtaW5zb2x2ZW5jeS1iYW5rcnVwdGN5LTEuNTY3MzU2NtIBIGh0dHBzOi8vd3d3LmNiYy5jYS9hbXAvMS41NjczNTY2?oc=5

2020-08-05 14:06:00Z
CBMiRWh0dHBzOi8vd3d3LmNiYy5jYS9uZXdzL2J1c2luZXNzL2NjYWEtaW5zb2x2ZW5jeS1iYW5rcnVwdGN5LTEuNTY3MzU2NtIBIGh0dHBzOi8vd3d3LmNiYy5jYS9hbXAvMS41NjczNTY2

Tidak ada komentar:

Posting Komentar