The fallout continues from the sudden collapse of Small Business BC — an organization long regarded as too big to fail due to the vital resources it provided to small businesses across British Columbia and its close ties, including significant public funding, from both the provincial and federal governments.
Each year, Small Business BC supported tens of thousands of small businesses and entrepreneurs by offering educational programs and advisory resources that helped them start, grow, and manage their businesses successfully, including avoiding or navigating through bankruptcy.
The shutdown of Small Business BC comes at a time of economic uncertainty and poor economic fundamentals, leaving small businesses at a higher risk of bankruptcy. For example, in recent weeks, businesses impacted by the prolonged shutdown of Canada Post services during the busy Christmas shopping season may have sought advice from Small Business BC.
Small business is big business in BC; over 500,000 small businesses make up 98% of all businesses in the province, and employ over 40% of the BC workforce or over 1.1 million people. They also represent over half of private-sector employment.
However, the non-profit organization shut down, filed for bankruptcy, and laid off about three dozen staff members on December 5, 2024.
Bankruptcy filings show the non-profit organization is facing $5.733 million of claims (including $5.65 million to unsecured creditors) from 63 different entities, including businesses, individuals, non-profit organizations, and governments.
Governments account for 76% of total claims
Of this amount, the claims made by entities of the provincial and federal governments represent a combined $4.35 million or 76% of the total claims.
From the Government of British Columbia, the claims entail about $1.72 million from the BC Ministry of Social Development and Poverty Reduction and $794,000 from the BC Ministry of Jobs, Economic Development, and Innovation, as well as smaller claims of nearly $60,000 from WorkSafe BC, $10,800 from Revenue Services of BC, $7,200 from Destination BC, and $1,500 from the BC Ministry of Finance.
The single largest claim is $1.78 million by the Government of Canada’s Department of Innovation Science and Economic Development.
Some of the non-governmental claims include $3,150 from PostMedia Network, $18,200 from Vancity Credit Union, $22,600 from Fortis BC, and $43,000 from unpaid rent for Small Business’ office at City Square Mall in Vancouver.
The third largest claim being made is from unpaid salaries/wages and other compensation of the staff of Small Business BC. Under the federal Wage Earner Protection Program Act, which kicks in when an employer has filed for bankruptcy, the staff of the organization are owed about $890,000.
“We have some staff who have been in their positions for a while, one in particular over 30 years. We have a couple more employees with 20+ years under their belt, so they have actually built up quite a bank of severance payments,” said a laid-off employee of Small Business BC in an interview with Daily Hive Urbanized on Friday, speaking on the condition of anonymity.
“There’s people who are, if their layoff had proceeded in slightly rosier financial circumstances, they would be looking at quite a bit of money right now, and there’s absolutely no certainty whether we’re going to get any of that.”
“Secrecy” about financial mismanagement
Canada’s bankruptcy and insolvency laws require a bankrupt entity to provide a declaration to all creditors. This includes selecting all applicable reasons from 19 checkboxes, each outlining a different cause of the debtor’s financial challenges. Just two boxes were checked for Small Business BC’s situation — the “Increased Cost of Doing Business” and “Other (Please specify).”
It was specified in writing that the “Other” reason is the “Mismanagement of funds.”
Daily Hive Urbanized spoke with an accountant who specializes in bankruptcy proceedings. They explained that, generally, the term “Mismanagement of funds” when applied to the context of non-profit organizations could, as a theoretical example, refer to situations where funds provided by a government grant or program were used for purposes other than those intended.
But it could also mean a scenario where a significant amount of money spent on an initiative was not offset by sufficient revenue. There are different ways of interpreting the relatively broad term.
The accountant also noted that, because many non-profit organizations operate on relatively limited budgets, implementing all the necessary checks and balances could be challenging due to the additional costs involved.
The legally stated reasons for the bankruptcy of Small Business BC.
The former Small Business BC employee laid off by the bankruptcy proceedings told Daily Hive Urbanized that the organization’s leadership has not been forthcoming with sharing knowledge over how exactly the financials were mismanaged.
“There has been quite a bit of secrecy about what exactly the financial mismanagement was. Staff were kept in the dark and are still kept in the dark,” they said.
“Whenever we inquired what exactly is going on here, we were always met with the response, ‘Oh, sorry, we’re not allowed to discuss that.’”
They shared that the situation first saw daylight in early November 2024, when Small Business BC board chair Joyce Yip held an organizational-wide meeting with all employees. She read out a prepared statement that informed the workforce that the board of directors had been recently been made aware of “significant financial mismanagement.” At that point, she said the board of directors had accepted the resignation of COO Josh Ludgate and suspended both CEO Tom Conway and the financial controller, while they investigated the circumstances leading to the situation. Additionally, they were informed a round of layoffs would be forthcoming, which ultimately happened a month later on December 5.
“The company existed for another month in this weird kind of grey area, where you could see that the leadership were in a lot of these hushed meetings with the blinds pulled down in the meeting rooms,” they said.
“It was clear the vibes were off. It was clear that something big was going on, but there was absolutely no indication from leadership… For a month, we all just sat around watching the company slowly fade. You could see it on leadership’s face that clearly something was not working out as they had hoped, and by the last week or two, nobody was coming into the office anymore. There was no managing going on, all the effort was being put into these secretive meetings.”
Staff learned that bankruptcy proceedings would be pursued on the same day they were let go earlier this month. Following his initial suspension, Conway is no longer with the organization.
Reliance on project-based government grant funding
As for some of the potential contributing factors for the organization’s critical financial situation, the former staff member painted a picture to Daily Hive Urbanized that Small Business BC expanded its mandate and scaled up its operations and programs at the height of the pandemic, when businesses were facing an existential crisis and needed more help than ever. But emerging out of the pandemic, increasingly, the revenues did not match the expenditures.
“For years and years, Small Business BC was a very financially stable organization with about 20 to 30 staff. But coming out of COVID, the business maybe took a pivot into pursuing these strategic projects, and with these projects came a need to staff up in certain ways to have the staff deliver these projects,” they told Daily Hive Urbanized.
“So our core funding from both levels of government has remained largely static for over a decade. The organization was being squeezed in that our costs were going up, but our contributions from government never really increased. What did increase was strategic project funding.”
The organization received strategic funding from governments for the Export Navigator — which was first launched in 2016 as a free one-on-one service to advise small businesses on how to expand into international markets — and COVID-19 business support services.
“This was a funding model that the organization came to rely on in the last few years because the cost of doing business and providing our core services was getting harder and harder to meet that cost given our government contributions.”
Furthermore, they told Daily Hive Urbanized that the organization’s leadership did not believe illicit activity contributed to its financial struggles. Instead, the leadership repeatedly attributed the issues to “extreme mismanagement” when asked.
One example of this mismanagement, they continued, was that staff costs were not included in certain budgets.
Investments were also recently made in renting a “very nice” office space at City Square Mall, complete with a downtown Vancouver skyline view, despite the fact that “nobody really wanted that,” as staff had been happy working remotely. To offset some of the office rent costs, they ended up subleasing part of the space.
Additionally, they pointed out that the annual Small Business BC Awards accounted for a large portion of the organization’s budget, but the effort each year barely broke even on its costs. The organization was also spending substantial amounts of its funding on videos for the award winners and finalists.
Examples of videos created for the 2024 Small Business BC Awards:
“It just wasn’t a great use of money, I don’t think,” they said regarding the video expenditures for the awards.
“I just think it was a series of bad decisions over the years that compounded and created a financial situation we just couldn’t turn around,” they added.
Calls for an investigation by BC’s Auditor General
Archived annual reports with financial statements show Small Business BC had an annual regular operating budget of $2.72 million in 2017, $3.08 million in 2018, and $3.34 million in 2019. Both Conway and Ludgate joined Small Business BC as the organization’s top executives in April 2019.
The pace of the regular operating budget’s growth accelerated with the onset of the pandemic, reaching $4.34 million in 2020, $5.53 million in 2021, and $7.38 million in 2022. The operating budget saw a year-over-year dip to $7.03 million in 2023, with a deficit of $37,000 for that year following a surplus of $496,000 in 2022.
Over the same period, salaries and benefits expenditures in the regular operating budget were $1.55 million in 2017, $1.63 million in 2018, $1.56 million in 2019, $2.13 million in 2020, $2.25 million in 2021, $1.55 million in 2022, and $2.15 million in 2023.
Over the decades as a non-profit organization, Small Business BC received significant funding from both the provincial and federal governments. Its origins can be traced back to Vancouver’s hosting of Expo ’86, when the provincial government established a provincial agency to help businesses capitalize on the economic opportunities created by the World’s Fair. In 2002, the organization transitioned into a non-profit entity, maintaining strong connections with the provincial government.
For ongoing core funding from federal government through Pacific Economic Diversification Canada (PacifiCan; formerly known as Western Economic Diversification Canada), it received an annual subsidy of about $1.05 million for its regular annual operating budget between 2017 and 2023.
As for ongoing core funding from the provincial government, Small Business BC received $686,000 each year toward its regular annual operating budget between 2017 and 2023.
Such annual core funding subsidies are separate from strategic project funding.
For example, it received government funding to operate a COVID-19 support service for businesses — $59,949 in 2020 and $440,000 in 2021.
In June 2023, PacifiCan announced it will provide Small Business BC with $3.6 million over three years to renew and expand the ongoing Export Navigator program.
In early November 2024, PacifiCan made another announcement — it will provide up to an additional $2.7 million to Small Business BC to further support its programs, specifically for business advisory services, workshops, networking opportunities, and mentorship. However, on Monday, PacifiCan told Daily Hive Urbanized it has only disbursed a small proportion of this funding to date — $87,832 for eligible costs. With the organization’s problems now known, any further payments will be suspended.
On Thursday, Daily Hive Urbanized reached out to the provincial government for a comment on the approximately $2.6 million it hopes to claim from Small Business BC in the bankruptcy proceedings. They referenced Premier David Eby’s comments early this week on ensuring taxpayer dollars are protected and that provincial funding is recovered.
“Obviously for the employees of Small Business BC, this is a big deal. But for businesses that were dependent on the services the Small Business offered, this is significant,” said Eby during a press conference on Monday.
“We were aware that Small Business BC was in financial difficulty and staff were actually working with Small Business BC to try to address that issue. They decided to enter into creditor protection.”
At the time, Eby also stated that the provincial government would work to ensure that contracted services to Small Business BC, such as the Export Navigator, continue to operate.
When inquired on Thursday about the federal government’s claims in the bankruptcy proceedings, PacifiCan also reiterated its previous statement to Daily Hive Urbanized, noting that they were informed by Small Business BC’s board of directors in early November 2024 of the “discovery of financial mismanagement within their organization.” PacifiCan will now work with the appointed trustee.
On Thursday, Gavin Dew, the BC Conservatives’ critic for the Ministry of Jobs, Economic Development, and Innovation and the MLA for Kelowna-Mission, formally requested the Office of the Auditor General of BC to conduct an independent investigation into the collapse of Small Business BC.
He criticized the fact that financial mismanagement of public funding occurred despite a representative of the provincial government sitting on the organization’s board of directors.
“It is particularly concerning that a representative from the Ministry of Jobs, Economic Development, and Innovation served on the board of Small Business BC as this situation played out,” wrote Dew in a letter to the Auditor General. “This ministry representative had a clear responsibility to steward the millions of taxpayer dollars provided to the organization and to ensure that proper governance and financial accountability were maintained. The collapse of SBBC raises serious questions about whether this responsibility was adequately fulfilled and whether appropriate oversight mechanisms were in place.”
He continued, “The collapse of SBBC not only involves the loss of a critical provincial resource for small businesses but also poses a risk to public trust in the administration and oversight of publicly funded organizations. I believe an independent review by your office is essential to determine what went wrong, identify lessons for the future, and ensure accountability where necessary.”