Navigating Insolvencies in 2024 - Part 4 - AU Group

Navigating Insolvencies in 2024

Part 4 : A Dive into Liabilities and Risk

Roch Simard, MBA

AU Group Canada

About this virtual conference

On March 20, 2024, we hosted a virtual conference focused on navigating insolvencies in the coming year, presented to the Business Development Bank of Canada (BDC). In this insightful session, I had the privilege of interviewing Mr. Maxime Lemerle, the Lead Analyst for Insolvency Research at Allianz-Trade, as we explored the resilience of Canadian entrepreneurs in the aftermath of COVID-19.

Recap of Part 3

In the previous section, we discussed the alarming rise in insolvency rates across Canada and the regional disparities underlying this trend. As we move forward, the conversation with Maxime Lemerle takes a critical turn towards the financial implications of these insolvencies.

Continuing our in-depth discussion, we shift our focus to the future of insolvencies. With the revelation of widespread sectoral challenges, the question arises: what does the future hold for insolvencies in Canada?

What about the liabilities side of insolvencies?

Roch posed a thought-provoking question, “The forecast sounds concerning, especially in terms of financial impact. Can you delve deeper into the liabilities side of these insolvencies?” Maxime’s answer shed light on the nuanced reality beneath the headline figures.

Maxime’s Insights

Maxime explained that absolute figures often blend the debts of corporations and individual firms, masking the varying scales of their financial distress and the subsequent macroeconomic impacts, such as employment and the potential domino effect on suppliers through trade credit insurance (TCI). He emphasized that the size of the firm is a crucial factor, as larger firms typically carry more liabilities, affecting the average financial impact of insolvencies.

He provided an aggregated view, noting that in 2022 the total liabilities stood at USD 3.7 billion, significantly lower than peaks seen in previous years, and the record high of 2016. Despite a decrease in 2022, the average liabilities per bankruptcy have been on an upward trajectory since 2005, reaching USD 1.4 billion, a noticeable increase from less than USD 0.5 billion in 2005. Industries like mining/oil/gas, finance/insurance, agriculture, firm management, and real estate were highlighted as having the highest average amounts of liabilities.

Maxime also touched on the insolvency rate, a key metric for a comprehensive risk assessment. He pointed out that the absolute number of insolvencies is intrinsically tied to the business demographics—the higher the number of existing firms, the greater the base for potential insolvency, ceteris paribus. The insolvency rate thus offers critical insight into the health of the business landscape, far beyond what raw figures can convey.

In conclusion, Maxime’s insights reveal a complex picture of the insolvency landscape, where understanding the depth and breadth of liabilities is essential for a full risk assessment. This analysis underscores the importance of not just looking at the number of insolvencies but understanding the financial severity behind them. As we continue to navigate these challenging economic times, such nuanced understanding becomes invaluable for entrepreneurs and policymakers alike. The conversation highlights the need for vigilance and strategic planning to mitigate these financial risks and safeguard the broader economy.

About this series

This insightful session is part of our ongoing commitment to providing valuable perspectives that can help entrepreneurs and business leaders strategize for the future. For those who missed the earlier sessions, we invite you to review the conference materials available on our website for a comprehensive understanding of this evolving landscape.

For further details

For those looking for further details or who have additional questions, Jocelyn St-Onge from Allianz-Trade Canada and I, Roch Simard, are readily available as resources to assist you.

We extend our gratitude to Maxime Lemerle for his expert analysis, to Véronik Ménard and her team at the BDC for facilitating this important discussion, and to all the participants who joined us for this conference. It’s through these collaborative efforts that we can equip ourselves with the knowledge and tools needed to thrive in the evolving business landscape of 2024 and beyond.

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