Plant closures and bankruptcies have figured prominently in the bad news about the economy. A tragic and little-known aspect is that some could have been prevented but occurred because of panicky actions on the part of banks. The Toronto Star of December 18, 1982 reported on the closure of AGM Machine & Parts Ltd. of Rexdale, Ontario. This firm, employing twelve employees, was (like many others) hard-strapped for cash and after a difficult summer was faced with foreclosure by the Canadian Imperial Bank of Commerce, which had loaned the company a total of $216,000.00. A Montreal-based entrepreneur attempted, successfully it seemed, to rescue the operation. However, due to a last-minute snag and an apparent misunderstanding, the assets of this company ended up under the auctioneer’s hammer.
This story, and there are similar ones, raises troublesome questions about receivership procedures and the role of banks. While governments now talk about investing millions of dollars in job creation, would it not make as much sense to help otherwise viable companies going through a temporary cash shortage? Peter C. Alapin succintly states the case:
The receivership-bankruptcy process is an integral, though sad, part of the business system. But the number of bankruptcies is much greater than it needs to be because of the lack of fairness in the lending and borrowing game between banks and small businesses….
A stable and reasonably profitable banking system is essential to the economy. But the stability and profitability of small business in Canada are just as important. The bankers should establish some basic rules of lending, make them public and play by them. What we need is some form of appeal body to hear small business complaints regarding unfair banking practices. Making the banks more accountable would shorten the business mortality list. (Canadian Business, March 1982, p. 140.)