New Insolvency Resource Available.

AuthorBroder, Peter
PositionNOT-FOR-PROFIT / New Insolvency Resource Available

It is sometimes said that there are "too many charities." The logic that drives that observation does not seem to apply in the for-profit realm, where the increase of firms in a particular subsector is more likely to prompt comments about the importance of choice and the value of competition. The COVID-19 pandemic has, if anything, sharpened worries about the disappearance of small business. On the voluntary sector side, some continue to welcome "rationalization". The bigger worry should be about the impact on Canadian's quality of life that significant shrinkage of the sector will have.

Leaving aside theory, the hard fact is that the pandemic and its economic fallout have thrown many organizations into difficult financial straits. Therefore, the number of charities and other voluntary sector groups is likely to drop markedly in 2021 and beyond. Few sector groups had the reserves or other resources to weather the hit to their income caused by the health emergency or had access to additional funding to address spikes in the need for their services stemming from the crisis.

Government relief programs provided some help, but their scope could never be expected to make up the shortfalls faced by the majority of organizations. As the pandemic resurges, the time organizations need to scrape by lengthens, and inevitably more won't be able to make it.

Faced with these realities, the Muttart Foundation, in collaboration with the law firm Miller Thomson LLP, has produced a resource to assist groups in coping with financial hardships. Paths Forward in Financially Troubled Times--A Restructuring and Insolvency Guidebook for Charities and Non-profit Organizations is now available through the Foundation's website. (Full disclosure, the author of this column contributed to the writing and development of the Guidebook.)

The Guidebook lays out a number of avenues that financially-stressed groups can explore.

These range from continuing operations in a different legal form or in a collaboration, to revamping finances to survive immediate threats to viability, and to wrapping up the organization and its functions in a prudent and reasonable manner. No one option will be right for every organization. The Guidebook attempts to provide an even-handed look at the merits and drawbacks of the various paths. It does, however, warn against informally abandoning operations. This can lead to exposure to liability and may alienate stakeholders in a way that makes it...

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