Revising Bankruptcy Laws BDO Dunwoody/Chamber Weekly CEO/Business Leader Poll by COMPAS in the Financial Post for Publication March 22, 2004

Transcription

1 Revising Bankruptcy Laws BDO Dunwoody/Chamber Weekly CEO/Business Leader Poll by COMPAS in the Financial Post for Publication March 22, 2004 COMPAS Inc. Public Opinion and Customer Research

2 1.0. Introduction The business leader panel feels that Canada s bankruptcy laws favour management and owners over creditors. They are concerned about the abuse of the corporate veil for personal gain, and they strongly favour prohibitions against those who repeatedly declare bankruptcy. They nonetheless feel that many bankruptcies are honest actions of business people affected by factors beyond their control, and would not want such people to be harmed by revisions to the law aimed at miscreants. They oppose removing the professional designations of accountants and lawyers just because they are involved in bankruptcy. These are the principal findings from this week s web survey, conducted on behalf of the National Post under sponsorship of BDO Dunwoody and the Canadian Chamber of Commerce Laws Biased against Creditors Strong Desire for Prohibitions against Repeat Users of Bankruptcy Protection By a margin of more than 7:1, the business leader panel holds that bankruptcy laws somewhat or strongly favour officers, directors, or owners of firms as opposed to creditors, as shown in table 1. Altogether, 46% believe that such laws favour the former groups and 6% the latter group with 23% feeling that the law strikes a good balance. The remaining fourth reserve judgement. Table 2 presents a series of possible actions for revising current law to constrain those who make use of bankruptcy protection. The panel strongly supports one proposal, is lukewarm on some others, and resolutely opposed to still others, as shown in table 2. At the get-tough end of the spectrum, a two-thirds majority supports prohibit[ing] senior officers, directors and owners who declare repeated bankruptcy from operating a business in the same industry 67% score 4-5 on the 5 point agree-disagree scale vs. 15% scoring 1-2. At the don t-get-tough end of the spectrum, clear majorities oppose taking away the professional designations of chartered accountants or lawyers who are officers, directors, or owners of firms that go bankrupt. Respondents are evenly divided about strengthen[ing] laws to hold senior officers, directors and owners personally accountable for outstanding liabilities. 1

3 Table 1: (Q1) Thinking of bankruptcy laws in Canada, would you say that Canada s bankruptcy laws [ROTATE POLES] % Strongly favour senior officers, directors or owners 12 Somewhat favour senior officers, directors or owners 34 Strike a good balance 23 Somewhat favour creditors 5 Strongly favour creditors 1 DNK/REF 24 Table 2: (Q2) Please score each of the following using a 5 point scale where 5 means definitely agree and 1, the opposite Canada should [RANDOMIZE] Prohibit senior officers, directors and owners who declare repeated bankruptcy from operating a business in the same industry Prohibit senior officers, directors and owners who declare repeated bankruptcy from operating a business in any industry Strengthen laws to hold senior officers, directors and owners personally accountable for outstanding liabilities Chartered accountants should lose their professional designation if they are a senior officer, owner, or on the board of directors of a company that declares bankruptcy Lawyers should lose their professional designation if they are a senior officer, owner, or on the board of directors of a company that declares bankruptcy MEAN dnk Respondents take a very case-by-case approach to bankruptcy, outraged by some bankruptcies and highly sympathetic to many others. Their case-by-case approach explains why on balance they agree to only a moderate extent that the abuse of bankruptcy protection and the corporate veil are a serious problem. As shown in table 3, 38% see it as a moderately or very serious problem, scoring 5-6 on the response scale, while 20% take the opposite view, scoring 1-2 on the same scale. 2

4 Table 3: (Q3) Using a 5 point scale where 5 means a very serious problem and 1, the opposite, to what extent is the abuse of bankruptcy protection and abuse of the corporate veil a problem? To what extent is the abuse of bankruptcy protection and abuse of the corporate veil a problem MEAN dnk Respondents were asked what questions COMPAS ought to have asked on the issue and how they would have responded. Many respondents volunteered some supplementary thoughts without reference to this specific invitation. The following is a representative array of their volunteered opinions: It is too easy to hide assets through spouses In the case of repeated bankruptcy, the rule should be three strikes and you re out Directors and owners should be required to automatically disclose to potential creditors if they were previously involved in two bankruptcies The problem is that some unscrupulous individuals are experts in bankruptcy Unsecured creditors should be allowed to participate in a specified portion (say 25%) of the assets that have value, whether or not these assets are pledged to secured creditors. I would be much harsher in circumstances when deception/fraud/negligence is a factor, of course. For entrepreneurs, risk of failure is a motivator and failure in the face of legitimate business challenges is not itself reason to banish from a sector nor to penalize them. Bankruptcy-type laws should be extended to politicians. I believe politicians should be held responsible for their spending and should have pensions deducted for the foolishness, including our Governor General. There are two types of bankruptcy-- those related to changes in economic conditions or unforeseen circumstances which can happen to anyone and there are those who de-fraud and intentionally abuse the system these are the ones that should be punished or restricted. For over a year Air Canada has been under court ordered protection and their creditors must still service them, yet they lost their receivables up to the date of the receivership. Where is the fairness in that 1) Banks and Financial Institutions wait until they 3

5 can get as much the money they have invested in company back, before they 'pull the rug', leaving unsecured creditors to suffer the full financial losses. To add insult to injury, Government Agencies get priority access to any remaining funds before Canada's small businesses. This puts a significant burden on Canada's small business and, in some cases, can cause a 'Domino Effect' by bankrupting some of these unsecured creditors. 2) When potential unsecured creditors ask for credit information on a specific new client, Banks and other 'secured creditors' often paint a 'rosy picture', knowing full well that they may be 'calling their loan', forcing bankruptcy, in the near future. 3) Lending Institutions and Government Agencies continue to lend money to companies that declare bankruptcy one day and open their doors the next with the only change being in their corporate name, which now includes the year in brackets. Again, Canada's legitimate small businesses suffer the financial losses. Too often a spouse or sibling of a person who declared bankruptcy will open up the same business under another name. The time period for discharging individuals should be reviewed and probably lengthened. Make sure a whistle blowing director is free from director obligations under the Bankruptcy Act Methodology The National Post/COMPAS web-survey of CEOs and leaders of small, medium, and large corporations and among executives of the local and national Chambers of Commerce was conducted March 17-19, Respondents constitute an essentially hand-picked panel with a higher numerical representation of small and medium-sized firms.. Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of 149 are deemed accurate to within approximately 8.0 percentage points 19 times out of 20. The principal and co-investigator on this study are Conrad Winn, Ph.D and Tamara Gottlieb. 4