by Mary Ann Marriott, CIRP
May 9, 2016
It’s been a rough time for Canada’s oil patch, with companies feeling the brunt of an extended downturn in energy prices. As an insolvency professional, I think it’s safe to say we’re just seeing the start of the fallout.
If we look at the national insolvency statistics for February 2016, released recently by the Office of the Superintendent of Bankruptcy, what really pops out are substantial increases over the previous 12-month period for Manitoba (10.6%), Saskatchewan (17.6%), Newfoundland and Labrador (21.4%) and Alberta, which tops the charts with a whopping 24.2% increase. And that’s a province that saw a modest increase in insolvencies of only 2.2% during the same period a year earlier.
Overall, the impact is coming from consumer insolvencies (businesses made up only a small fraction of the increase) and was blunted by a 1.3% decline in the number of insolvencies in Ontario, the most populous province. That left us with an increase of 3.5% in total insolvencies across Canada – but what’s happening in regions where oil is a factor is definitely having an effect.
“I am seeing an increase in debtors coming in who worked out West on oil rigs and have been laid off, making their current debt load unmanageable” states Daniel Rozon, a Licensed Insolvency Trustee in Grant Thornton Ltd.’s Newfoundland office.
[caption id="attachment_199" align="alignnone" width="576"] Table 4: insolvencies by NAICS Economic Sectors (OSB)[/caption]
To illustrate the impact of cheaper oil, Table 4: Insolvencies by NAICS Economic Sectors, Canada (Published by the Office of the Superintendent of Bankruptcy), lists the following industries as the top three with an increases over the previous 12-month period: Management of Companies and Enterprises (12.1%), Real Estate and Rental Leasing (9.8%) and Mining and Oil and Gas Extraction (9.8%).
It’s interesting to note that the fallout of an industry’s decline can be far reaching and impact many complimentary product and service-based industries. Insolvency professionals around the country are seeing an increase in filings due to job loss and unemployment. Additionally, overextension of credit continues to be a common cause of financial difficulty.
Since insolvencies generally take some time to resolve, they tend to lag behind economic causes. Oil has not close to recovering from a plummet that began in 2014, and we can only expect to see more and more consumers looking to a Licensed Insolvency Trustee in these regions as the impact of lost jobs in the sector continues to play out.
The complete Statistics can be found at: http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br03575.html