TORONTO – Olivia Benchaya knew from the start of the COVID-19 shutdown that Canadian business was heading for a significant downturn, but even weeks later Richard’s restructuring and bankruptcy partners are still trying to understand the importance of what lies ahead. For the most troubled companies in the country.
“We are getting clear indications that there will be more significant consequences than going back to business properly,” said Benchaya, a member of the Montreal team of independent business consulting firms.
When a company commits suicide on rising debts and usually starts filing protection claims under the company’s creditors settlement law, nothing that is usually considered CCAA prepared it for him or his peers.
Benchaya has been in the restructuring business for more than 15 years, and the traumatic economic downturn of 2008-09 has not coincided with the global catastrophe since March.
“Even the restructuring professionals who are accustomed to traveling around this world were surprised that the economy has completely shut down,” he said.
“It simply came to our notice then. The banks did not take action, the courts were closed … (Business owners are just waiting for them, trying to shed light on it and trying to avoid government restructuring.)
He said the suspension inevitably delayed for many companies whose liabilities and rental obligations had ended, he said. He predicts that some will see the real financial impact when they return to business and revenue declines.
In the coming months, larger corporations will collapse more than িয় 5 million of their creditors, and CCAA will apply for protection in the hope of turning their business into a court order. Other companies with small debts below 5 5 million may use bankruptcy and insolvency laws for such action.
Exactly how many businesses will collapse and how quickly the federal government will stop tapping into financial aid is not certain.
A Bank of Canada report released on Thursday raised fears that the sharp decline in revenue from COVID-19 would make it harder for many businesses to pay off their debts steadily. The problem will only get worse for heavy business.
“There will be peace in the face of the storm,” said Mohammed Rahman, an associate professor of finance at Sobi Business School, part of St. Mary’s University in Halifax.
Earlier this week, Prime Minister Justin Trudeau proposed bridge funding to companies with at least 300 million in revenue. The goal is to keep their business open, employ employees and hopefully avoid bankruptcy of otherwise sustainable firms.
However, companies facing bankruptcy before the crisis will not qualify under the new rules.
Even before COVID-19, the number of corporate bankruptcies in Canada was rising. According to the Bankruptcy and Reconstruction Association of Canada, the number of documents filed in the oil, gas and gas sector increased by 75% in 2012 compared to the previous year. Other sectors, including double-digit growth, were wholesale and manufacturing.
With six companies applying for credit protection in the first quarter of this year, the marijuana sector is currently facing serious risks, with leading business law firm Macmillan predicting a “significant consolidation” of marijuana labels by 2020 as a virus. This puts extra pressure on the industry which is already in consolidation.
Other volatile industries at risk include the battery-powered retail sector, where some traditional dilapidated brick and mortar brands have been too slow to meet online sales demand even before COVID-19, industry observers say.
Richard LeBlanc, a professor of law and ethics at York University, predicts in the future that viruses will be on the brink of a CCAA or bankruptcy file before the virus reaches even faster speeds in the coming months.
“The first companies that would go to the edge were (those) who had cash flow problems before,” he said.
“The secret is the broken hay behind the camels. They have no cash reserves. They did not survive for any rain. Their earning model may be wrong.”
In early May, Montreal Aldo Group Inc. Several prominent retailers, including a chain of camera shops with Toronto-based shoe retailers and Toronto-based Henry, were pressured into CVAA-registrations.
Other agencies are already blaming COVID-19 for the decision to suspend operations.
The director of the Global Fleet in Splendor, which rents vehicles to Uber pilots, has declared bankruptcy in Canadian operations after a sharp decline in business due to physical distance – which he said Toronto-on-demand passenger travel is declining. Less than 20 percent of its low levels.
“As a result of this declining demand in Ontario, many of our members struggled to pay their weekly rent and decided to return the vehicles under the terms of their contract,” the organization told the Canadian Press in a statement.
“With the return of vehicles, the loss associated with earnings and the refusal of our financiers to change the terms of our existing loans, we have discovered that the Canadian business model is simply not sustainable.”
Although federal government assistance has become a temporary measure to manage many tasks, Rahman suggested that Canadian banks “get on the plate” with better nding payments.
“They can do more to help businesses,” he said.
Banks – especially larger banks need to identify “good credit” companies and help them overcome the crisis … I would call for holiday payments and ask for some loan waivers in case of good credit – risky companies to deal with this economic storm. “
These measures could reduce the number of companies applying to the CCAA in the coming months – which could reduce the burden on the Canadian judiciary. Court fatigue will lead to significant backlogs, which can exacerbate the problem, putting many creditors in trouble because their own traders fail because of unpaid bills.
“Is there a current court system that can handle such a large amount?” Said Dushiant Bass, an associate professor of accounting at the University of Toronto-Mississauga.
“If the crisis becomes more pronounced than we have seen so far and the judiciary is not fully equipped in terms of its capacity to deal with such a large amount of arrears and restructuring requests, what steps will the government take to facilitate a complete restructuring?” Economy? “
For Richter, these big issues are less in the spotlight than rebuilding and preparing the insolvency team for what lies ahead. Benchai said the group is hiring more experts to make sure they have staff to accept customers
“We are preparing for this stick,” he said.
“It will depend on how much this amount increases in the coming weeks and months.”
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David Friend, Canadian Press