Canadian businesses are bracing for a challenging year as economic pressures continue to build. High interest rates, inflation, and post-pandemic market shifts have put many companies at risk of financial distress. The Lexpert 2024 Special Edition on Insolvency and Restructuring highlights critical insights from leading restructuring and insolvency experts to help business leaders prepare for the storm. We also feature Canada’s top Lexpert-ranked insolvency lawyers.
The economic 'perfect storm'
Insolvency filings are expected to surge in 2025 as companies face mounting financial challenges. Milly Chow, a partner at Blake, Cassels & Graydon LLP, points to a combination of factors driving the increase: “You’ve got this convergence of what I call the economic headwinds, which is high inflation, high interest rates. You’ve got labour issues, you’ve got consumer debt… and then you have the geopolitical factors,” says Chow.
Insolvency filings are not limited to a specific industry. Guy Martel, a partner at Stikeman Elliott LLP, observes that high interest rates, inflation, increased costs, and increasingly weak consumer demand have mounted considerable pressure on companies. He predicts a “drastic increase in defaults” by early 2025, as many businesses will struggle to cope with these economic conditions.
Pandemic fallout continues to shape business struggles
While the pandemic may no longer dominate the headlines, its economic effects are still being felt. During COVID-19, government assistance programs created what Martel describes as an “artificial bubble,” temporarily shielding many businesses from insolvency. As those supports have ended, insolvency filings have been rising steadily, though they tend to be smaller in scale compared to past crises like the oil and gas insolvencies of 2015.
Chow notes that since 2023, the increase in filings has been more about volume than size. While many cases have not made the news, several industries – including trucking, real estate, construction, and cannabis – have been hit hard. One notable example is Pride Group, a major Canadian trucking company that filed for bankruptcy protection earlier this year. Chow explains that Pride’s downfall was tied to post-pandemic market shifts, a supply glut, and rising operating costs.
Vital legal developments reshaping the landscape
In addition to economic pressures, significant legal developments are affecting the restructuring and insolvency landscape. A closely watched case in 2023, Qualex-Landmark Towers v. 12-10 Capital Corp., addressed how environmental obligations are prioritized in insolvency proceedings. The case followed the Supreme Court’s 2019 Orphan Well decision, which allowed regulators to prioritize environmental clean-ups over repaying creditors. Initially, the Qualex decision extended this priority, causing concern among lenders. Lenders were “very nervous,” says Robyn Gurofsky of Fasken Martineau DuMoulin LLP. However, the Alberta Court of Appeal later overturned that decision, limiting the priority given to environmental obligations.
Another significant legal development is the federal Pension Protection Act (PPA), passed in 2023 and set to take effect in 2027. The PPA requires employers in insolvency to prioritize defined benefit pension plan deficits over other debts. While designed to protect pensioners, the legislation has had a chilling effect on lending. Natasha MacParland of Davies Ward Phillips & Vineberg LLP explains that lenders are increasingly hesitant to fund employers with defined benefit pension plans, noting that it is hard “to precisely quantify the dollar value of the risk.”
Preparing for the road ahead
As businesses and legal advisors look ahead to 2025, they must take proactive steps to navigate these economic and legal challenges. Chow and Martel emphasize that many companies will struggle to withstand the ongoing pressures. Job numbers don’t look great, consumer confidence isn’t high, and a significant maturity wall of corporate debt is due at the end of 2025.
This Special Edition will give you the insights and guidance to face these challenges head on. With expert analysis from leading restructuring professionals, this issue offers practical advice on managing distressed assets, understanding legal risks, and preparing for the uncertain road ahead.