Fewer individuals, companies filed for bankruptcy last year

The Office of the Supervisor of Insolvency (OSI) has reported a 37 per cent reduction in the number of individuals and businesses that sought protection or filed for bankruptcy in 2022 when compared to 2021.

Eleven insolvent individuals and seven companies sought protection under the regime last year, compared to 19 individuals and 10 companies in 2021.

A department of the Ministry of Industry, Investment and Commerce, the OSI has the licensing authority for practitioners to supervise the administration of insolvent estates and to ensure that trustees act in compliance with the Insolvency Act.

Data provided by the OSI show that 170 filings in the form of receiverships, proposals, assignments and receiving orders were made during the period 2015 to 2022.

Over the eight-year period, the highest number of filings were made in 2018, followed by 2019, when 44 and 32 filings were made, respectively.

The largest filing for 2022 was approximately $1 billion while individual filings averaged $5.7 million, down from $27 million in 2021.

Conversely, average filings by businesses increased to $267.5 million, up from $208 million in the previous year.

“For the 2020 period, the three companies were part of the marketing and advertising sector. During the 2021 period, industries included fashion, tourism and entertainment, mining, manufacturing and airline industries, while, for the 2022 period, businesses included real estate, tourism and entertainment, pharmaceutical manufacturing, gasoline and fashion,” the OSI told The Gleaner.

Twenty-one per cent of filings were from small businesses, a reduction when compared to 39 per cent in 2021.

The OSI maintained that financial illiteracy and the inappropriate use of credit continue to be the main reasons insolvent persons seek protection under the act.

“Persons continuously borrow to satisfy reasonable personal expenses, in other words, to supplement their salaries. Over time, monthly loan payments alone average 65 per cent of income, making it impossible for them to meet other monthly obligations as they become due,” the OSI explained.

Commenting on the reduced number of filings, the department said its efforts to educate Jamaicans on how to manage credit, to rehabilitate before it is too late, and their provision of solutions through other methods than bankruptcy, may have had an impact on the reduction.

“A return to normalcy following the COVID-19 pandemic may have also contributed. It is the OSI’s vision for rehabilitation instead of bankruptcy to be the resolution of choice for insolvency events in Jamaica,” the OSI told The Gleaner.

EXPIRATION OF COVID RESTRICTIONS

Dr Peter-John Gordon, lecturer in the Department of Economics at The University of the West Indies, Mona, said it would appear, without a lot of data, that the reduction can be attributed to the expiration of COVID-19 restrictions in 2022.

“Because of COVID-19, a lot of businesses had a very hard time and it is not surprising that many of them fell into financial difficulty. As the economy opened up and business started to boom again, it was expected that [fewer] companies would face that kind of difficulty,” he told The Gleaner.

Gordon reasoned that tourism and other sectors that support industries such as entertainment and transportation were largely affected by the impact of the pandemic.

“I expect that filing numbers will continue to go down, but not necessarily at the same rate. We are in a recovery phase and, once we get back to where we were in 2019, thereafter, we can talk about breaking new ground,” he said.

Meanwhile, the OSI implored Jamaicans who are in dire financial straits to utilise the provisions of the regime to arrive at amicable agreements to reorganise and restructure debt and allow viable companies to continue to operate.

“In the event bankruptcy is the only option, that, too, is not a death sentence. It is for honest but unfortunate persons to pay their debts in a systematic way, to satisfy creditors, be unburdened by debt, and get a fresh start. Importantly, the regime also aims to rehabilitate individuals by the provision of mandatory financial counselling aimed at providing them with the necessary tools to avoid pitfalls,” the OSI said.

judana.murphy@gleanerjm.com