Consumer Insolvency Revisited with Scott Terrio | E113
What to do when the business may not be viable anymore.
On today’s episode of Financial Planning for Canadian Business Owners we have repeated guest Scott Terrio, Manager of Consumer Insolvency at Hoyes Michalos. Scott is here to discuss the impact of COVID-19 on businesses, focusing on the Canadian Emergency Business Account (CEBA). Jason and Scott will also delve into the economic challenges faced by various sectors and the diverse effects of the pandemic on businesses and the unexpected impacts on certain sectors during different phases.
Episode Highlights:
01:06: Scott provides an overview of his role and the services offered by Hoyes Michalos, highlighting their focus on personal insolvencies and their significant experience in the field.
02:52: Jason introduces the main topic, discussing the Canadian Emergency Business Account (CEBA) and its implications for businesses.
03:24: Scott explains the purpose of the CEBA and its role in providing financial support to businesses during the economic downturn caused by the pandemic.
04:22: Discussion focuses on changes in the CEBA repayment terms, including the extension of deadlines and the challenges businesses are experiencing in meeting repayment obligations.
07:02: Scott provides insights into the diverse range of businesses significantly impacted by the pandemic, highlighting sectors like restaurants, bars, entertainment, tattoo artists, and flight attendants.
09:21: Scott explains the typical scenario of personal guarantees in business loans and highlights that CEBA loans were different in that they were solely for the corporation, not personally guaranteed.
10:32: Jason discusses the changes in CEBA repayment terms, noting the extension of deadlines and the option for the remaining amount to be converted into a five-year term.
12:19: Jason outlines the current challenges faced by business owners, including loans coming due, economic difficulties in specific sectors, and cash flow constraints.
13:12: Scott highlights the aggressive actions taken by the Canada Revenue Agency (CRA), freezing accounts, and putting additional pressure on businesses. He also mentions businesses using funds meant for HST or payroll to sustain operations during the pandemic.
15:41: Scott discusses the broader financial challenges, including inflation, interest rate hikes, and consumers cutting back on essentials, creating a complex and challenging environment for small businesses.
16:30: Scott emphasizes the importance of seeking assistance promptly, sharing insights from their experience that individuals often take 12 to 24 months to reach out for help when realizing they're in financial trouble.
17:23: Scott stresses the legal obligation of trustees to provide all available options to individuals and notes that only around 40% of people who seek advice from them end up filing. He highlights the significance of avoiding financial problems and the value of early intervention.
18:12: Scott emphasizes that time is the enemy of debt and underscores the importance of acting promptly when facing financial challenges. He mentions the complexities involved, including tax issues, CRA actions, and corporate law.
21:42: Scott points out that stressed business owners may not be thinking clearly and could be unaware of certain aspects, such as the distinction between corporate and personal debts.
23:56: Jason shares a case where a distressed individual had all assets in his wife's name, making the situation favourable for filing. Scott emphasizes the importance of timing, stating that it makes more sense to file now than when the person is making a higher income in the future.
24:39: Jason inquiries about the process of shutting down a business, including what needs to be filed and Scott's involvement in the process. Scott mentions the importance of filing up-to-date returns, both personal and corporate, and emphasizes making the CRA happy by tying up loose ends.
27:16: Jason raises the concern that the stigma around bankruptcy might deter people from seeking help. Scott addresses this concern, explaining that both bankruptcy and consumer proposals are legal proceedings under the Bankruptcy Act.
28:21: Scott introduces the concept of tribal knowledge derived from the US and emphasizes the inclusion of various unsecured debts in a consumer proposal, such as tax, HST, credit cards, personal loans, and more.
28:56: Scott compares the insolvency code in Canada to the U.S. He emphasizes that Canada's system is more gentle, less litigious, and cheaper.
30:29: Scott discusses the creditor voting process in a consumer proposal, stating that it's a majority rule, with 51% of the total debt determining the outcome. He also mentions that the proposal stops future interest, providing a finite finish line for individuals struggling with debt.
31:52: Scott and Jason discuss how the last decade of low-interest rates has influenced people's perceptions of money. Scott suggests that the current economic situation will likely provide a reality check, as expectations might need to adjust to new financial norms.
34:51: Scott advises people to guide friends or family members who might be struggling with debt and need help. He emphasizes the importance of offering support and encouraging them to seek professional advice.
Key Points:
Scott provides insights into the struggles of small businesses, ranging from restaurants and bars to tattoo artists and flight attendants, highlighting the diverse impact of the pandemic across different industries.
The discussion covers the economic uncertainty during the early days of the pandemic, the unexpected impacts on sectors like flower shops, and the challenges faced by businesses in terms of ramping up and letting go of employees.
Scott addresses counterproductive behaviours individuals exhibit during financial struggles and stresses the legal obligation of trustees to provide options.
Tweetable Quotes:
"Time is the enemy of debt. Seeking assistance promptly is crucial. Waiting 12-24 months to address financial troubles can exacerbate the situation."
"Consumer proposals offer a more inclusive approach, covering tax, credit cards, and more. Understanding the nuances helps dispel misconceptions about the insolvency process."
"In the complex game of finances, early intervention is your winning strategy. Act promptly, seek advice, and navigate the challenges strategically to secure your financial well-being."
Resources mentioned: