COVID-19 accelerated retailers' creditor protection filings: Retail consultant
A record number of Canada’s largest businesses are seeking protection from creditors, a testament to the strains companies are under because of the coronavirus pandemic.
In the three months through June, 27 firms were granted protection under the Companies’ Creditors Arrangement Act, a federal law that gives insolvent corporations that have debt of more than $5 million an opportunity to restructure and avoid liquidation. That’s the most in any quarter since 2009, which is as far back as the data are available, according to the Office of the Superintendent of Bankruptcy.
May and June saw 10 and 12 orders granting protection, respectively, under the CCAA. The average since 2009 is three a month. Previously, the highest monthly total was nine, in December 2011.
Companies “are saying ‘times are tough, it’s not over yet, I just need some breathing room,’” Henry Louis, founder of Insolvency Insider, an industry website, said in an interview.
Retailers Reitmans Canada Ltd. and Aldo Group Inc., as well as cannabis firms Beleave Inc. and Green Growth Brands Inc. were among the companies that received CCAA protection in the second quarter.
While the CCAA applies to larger companies, a similar trend appears to be underway in the broader corporate sector, despite the fact that official data show a decline.
The primary avenue for troubled companies of any size to seek protection from creditors is to make a proposal under the Bankruptcy and Insolvency Act and these types of proposals have plunged in the past two months.
But, according to Louis, an increasing number of companies are filing so-called Notices of Intention -- the formal first step in the process, and one that gives the company immediate creditor protection and at least 30 days to prepare a proposal, a period that can be extended.
That suggests official insolvencies among companies of all sizes are poised to rise soon.