David Ward is a partner in Cassels Brock’s restructuring and insolvency group, and commercial litigation groups. David has a litigation emphasis to his insolvency practice, with a particular focus on creditors’ rights and remedies in reorganisations and liquidations under Canada’s major insolvency and corporate statutes. Building on his extensive commercial litigation background, David has significant experience advising a wide range of lenders and creditors on all aspects of commercial reorganisations in Canada.
Larry Ellis is a key member and partner in the Cassels Brock’s restructuring and insolvency group. He has extensive experience in both the litigation and commercial aspects of corporate restructurings, bankruptcies, receiverships, workouts and enforcement of creditors’ rights and remedies. He represents a number of different parties, including purchasers, secured and unsecured creditors, receivers, debtors, monitors, trustees and lending syndicates.
Ben Goodis is an associate in the Cassels Brock’s restructuring and insolvency group and financial services group. Ben’s practice focuses primarily on domestic and cross-border commercial reorganisations, including proceedings under the Companies’ Creditors Arrangement Act and the Bankruptcy and Insolvency Act, as well as informal restructuring proceedings. He has gained experience in both the corporate and commercial and litigation aspects of restructuring and insolvency.
“The retention of experienced and knowledgeable advisors can be a stabilising and productive step in an insolvency proceeding.”
Local impacts, global trends
Key 2018 developments across the Canadian insolvency law landscape parallel those in other reporting jurisdictions featured in this Market Intelligence. Construction and retail trade industries were leading areas of insolvency activity, with several new and legacy cases featuring prominently in the Canadian marketplace as well as other countries.
In this introductory article, the authors describe a few of Canada’s prominent insolvency stories and identify how certain trends presenting in the Canadian market extend beyond our borders to other jurisdictions featured in this edition of Market Intelligence.
According to Canada’s Office of the Superintendent of Bankruptcy, total business insolvencies for the month of November 2018 (the last publicly available data) were 8.9 per cent higher than in November 2017 – the largest year-to-year monthly jump in over two years. Considering data for the 12-month periods ending November 2017 and November 2018, the construction and retail trade industries experienced increases in insolvency filings, with construction rising by 10.8 per cent and retail trade rising by 4.3 per cent.
The Canadian retail sector continues to see many prominent insolvency filings as brick-and-mortar stores struggle amid shifting consumer preferences and growing competition from online channels. The supply requirements of physical stores outweigh consumer demand, putting additional pressure on industry profit margins. In these circumstances, and with interest rates rising steadily since the middle of 2017, it is not surprising that large retailers are experiencing challenges and seeking solutions to their distress.
As the holiday shopping period has come to a close and retailers are evaluating their performance and the latest consumer data, it is expected that more noteworthy filings will appear on the horizon.
The retail insolvency cases making news in Canada and the United States present complex issues for insolvency professionals to manage. While in Canada 2018 did not feature another retail-sector insolvency filing quite as large as the Sears Canada filing in June 2017, the insolvency community remained deeply involved in several legacy retail sector cases including, among many others, the aforementioned Sears Canada proceeding and the cross-border restructuring of the Toys “R” Us group of companies. It is not unusual for these cases to go on for months or even years, while a diverse range of stakeholders attempt to achieve solutions to their unique concerns.
Retailer insolvency cases continue to present challenging issues for employees and pensioners, landlords, suppliers and many other parties in interest. In late 2018, the Canadian government began a consultation process to determine whether to develop additional legislated priority for unfunded pension deficits. Such changes, however, are controversial to commercial lenders and other interest groups, and it remains to be seen if any changes to pension regulations and insolvency laws will ultimately be proposed or enacted in order to enhance retirement security.
Construction and development company insolvencies have also continued to feature prominently in the Canadian insolvency landscape in recent months. As the Toronto and Vancouver area real estate sectors continue to attract new investment and significant development projects are commenced, increasing construction costs and other challenges have caused high-profile failures, to the detriment of many stakeholders.
Among other issues, when residential condominium development projects fail, pre-construction purchasers are often left in the difficult position of deciding whether to cut their investment short and seek the return of their deposit, or to hope that the developer’s insolvency proceeding will lead to new project management and a resumption (or commencement) of construction activity. However, in the interim period since paying their deposit, these pre-construction purchasers may have been priced out of the market and find themselves unable to find a similar investment opportunity. For the pre-construction purchasers who decide to wait it out, it may be several more years before their true objective – ownership in a completed condominium development – becomes attainable.
Unfortunately, it seems these issues and other stakeholder concerns in the construction and development industry will persist, as high barriers to enter the real estate markets in several North American cities render riskier investments the only option for some consumers. Further, the continued rise in construction costs means that even strongly-managed and reputable construction companies, builders and other industry participants could face an economically challenging period.
As is evident from other contributions to this volume, these trends were not limited to the Canadian or North American experience in 2018.
In Spain, the United Kingdom and Argentina, for example, the authors cite the retail sector as experiencing significant restructuring activity, with the UK chapter describing that a ‘record number of retailers’ have sought to implement company voluntary arrangements to compromise their unsecured debt. The construction industry was similarly highlighted as a stand-out in the United Kingdom, with the sudden compulsory liquidation of the UK’s second-largest construction company, Carillion, being cited as the most notable insolvency filing in 2018. Indeed, the Carillion case has had an impact in several other global jurisdictions, including in Canada where it remains a significant ongoing case with over C$1.5 billion in creditor claims filed to date.
Notably, the Australia chapter suggests that doomsday predictions on the state of national brick-and-mortar retail might be a little extreme, and explains that although construction industry insolvencies continue to dominate formal insolvency filings, the number of industry insolvencies, while high, are not increasing in absolute terms.
While its legislation and procedures for restructuring and liquidating insolvent companies are unique, the Canadian insolvency experience in 2018 has parallels to several of the other jurisdictions described in this volume.
For the insolvency professional acting in a global environment, it is helpful to understand the business climates that persist and the insolvency tools available across different jurisdictions. Ultimately, as echoed by many of the contributors to this edition, the retention of experienced and knowledgeable advisors can be a stabilising and productive step in an insolvency proceeding, as insolvency professionals are well equipped to utilise the tools available to achieve their client’s objectives.