Bankruptcies declined 11% in 2010
The total number of Canadian businesses and individuals claiming bankruptcy dropped 11.5 per cent in 2010 compared to the previous year, new data released Friday shows.
The Office of the Superintendent Of Bankruptcy Canada said consumer involvencies were 11 per cent lower last year over 2009, while commercial insolvencies declined by 22.3 per cent.
The term insolvency refers to people who undergo formalized bankruptcy proceedings, but also those who make a proposal to creditors — an attempt to pay back the terms of a loan under newer, less onerous terms. It is generally less rigid than a formalized bankruptcy process.
'People were living on the edge.'—Andy Fisher, bankruptcy trustee
A full 96 per cent of the 140,234 insolvencies last year were by consumers. That has been the trend for several years, not only because there are more people than businesses in Canada, but also because businesses tend to come in to deal with the problem a lot sooner, says Andy Fisher, a partner with bankruptcy trustee A. Farber & Partners Inc.
"People were living on the edge," he said. "On the corporate side, companies were already in a good position to be able to prepare for the recession as it came in. They got their debt structured to manage unexpected changes."
A lot of times when a company goes under, it just closes its doors. That never gets recorded as an "official" bankruptcy, he notes.
Figures improve in subsequent months
In September 2009, Ottawa changed the bankruptcy act to make it more flexible. The changes might not be having much an impact on the number of filers overall, but it's changing the mix of proposals versus bankruptcies, Fisher suggests.
Early indications are that's exactly what's happening, as 31.3 per cent of consumer insolvencies last year were proposals, not firm bankruptcy filings. That's an increase from the 21.6 per cent in 2009.
The figures also show an improvement as the months went on. Bankruptcies and proposals decreased by 16.7 per cent from November to December, for example.
It's worth noting, however, that the total number of bankruptcies is still 20.6 per cent higher than it was during the 12 months ended in September 2008 that preceded the recession.
"The total figure was down 11 per per cent, which is encouraging, but we're still talking about 140,000 bankruptcies here," Fisher said. "We're still busy and unfortunately, we're still seeing a lot of people coming in."