Howestreet.com - the source for market opinions

ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

May 5, 2020 | The Great Deferral Period: Calm Before the Bankruptcy Storm

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

In March, when COVID-19 shutdowns were just starting, 46% of Canadians polled said they were on the brink of insolvency and less than $200 away from not being able to pay all their bills each month (MNP by Ipsos).  Since then, one-third of Canadian workers have applied for government income support and many are unable to make their debt and rent payments.

Lenders, landlords and tax collectors have responded with forbearance:  a temporary postponement of payment and collection efforts.  You can’t collect where there’s no money to be found, and seizing property and equipment when there’s a dearth of buyers is unlikely to yield the quick cash sought.  As a result, payment pressures have subsided and bankruptcy filings have fallen sharply in April.   However, payment deferrals quite literally add up and much of the revenue and income that has been lost, will not be recouped later.

Douglas Hoyes, a licensed insolvency trustee and co-founder of Toronto-based Hoyes, Michalos & Associates points out that the present bankruptcy calm is likely to end as soon as collection efforts resume.  See personal and business bankruptcy surge expected this fall:

“We need one domino to fall. And that may be at the end of August, when the CRA is, in fact, starting to seek payments for income tax or arrears of tax…By the time we get to the fall, the collection agencies are back at work. The banks want their money. The emergency benefits have stopped. So if in September and October, we saw a 20, 30, 40, 50 per cent spike in bankruptcies, that wouldn’t surprise me.”

A similar great deferral period is playing out in small businesses at the moment, even as a third of Canadian owners recently surveyed say they are unlikely to reopen after the shutdown.  Lou Brzezinski, a partner in the Toronto-based legal firm Blaney McMurtry that specializes in business reorganization, insolvency, liquidation and bankruptcy sees lenders ending up with pennies on the dollar and grim prospects for many sectors:

“How many small retail stores, how many restaurants, how much of the hospitality industry has been struck down for good that we will never see again?  I’d say it’s just short of catastrophic…I see the majority of the small businesses not surviving the bankruptcy. I see them ending.”

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the HoweStreet.com Weekly Recap.

May 5th, 2020

Posted In: Juggling Dynamite

Post a Comment:

Your email address will not be published.

All Comments are moderated before appearing on the site

*
*

This site uses Akismet to reduce spam. Learn how your comment data is processed.