Canadian business and consumer insolvencies are surging these days across the country as people continue to try to cope with rising costs and rising inflation.
Citing data from the Office of the Superintendent of Bankruptcy (OSB), the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) said business insolvencies in Canada surged by 41.4 per cent in 2023 compared to the previous year, the sharpest increase in 36 years of records from the Office.
It said business insolvency filings rose 34.7 per cent in the fourth quarter of 2023 compared to the previous quarter, and more than doubled (51.6 per cent) compared to the same quarter of 2022.
Consumer insolvencies in 2023 rose 23 per cent, the highest rate of increase since 2009, highlighting the increasing financial pressures faced by Canadians. An average of about 337 Canadians filed for insolvency each day in 2023, over 123,000 consumer insolvencies for the year.
In the fourth quarter of 2023, consumer insolvencies increased 4.4 per cent compared to the previous quarter. Consumer insolvency filings grew 22.9 per cent in the fourth quarter of 2023 compared to the same quarter of 2022.
“Businesses have been struggling to cope with a myriad of financial challenges over the past year, including higher input costs, wage costs, and debt servicing costs, exacerbating the rocky footing many have been on ever since the pandemic,” said André Bolduc, Licensed Insolvency Trustee and Chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), the national voice on insolvency matters in Canada.
“I’m not shocked. We knew that consumers have a lot of issues to deal with in terms of rising cost of living, rising interest rates and the debt levels are near record highs. They were there before the pandemic but things just got put on pause for a bit because of the pandemic. And we just took off where we left off. I call it the great pause. Insolvency filings dropped dramatically due to the pandemic. People’s concerns were not finances. It went from the number one spot to probably third or fourth right after health and taking care of their loved ones with the uncertainty of the pandemic.
“What we’ve seen on the consumer side is the gradual return to pre-pandemic levels. We’re not quite there but we’re just on the cusp. The issues we had in February 2020, which were people were talking about the higher cost of living, they were talking about the higher interest rates. It was 1.75 per cent at the time. It had gone up a couple of years before. It had gone up from I think half of a per cent. And consumers were starting to feel the impact of that. Now it’s five per cent and it’s still relatively new.
“So I’m not surprised. People with variable mortgages are starting to see that right away. People with fixed mortgages as they’re renewing their budgets are in for a big shock. For that segment of the population that’s in debt, that’s a big factor. Almost 50 per cent of households are living paycheque to paycheque still. So there’s a lack of savings there.”
The report said 4,810 businesses filed insolvencies in 2023, the highest annual volume in 13 years, a sign companies are struggling with higher debt-carrying and other costs.
Bolduc said debt accumulated by businesses during the pandemic lockdowns, are weighing heavily on many Canadian businesses and, in some cases, making them no longer viable or in need of debt restructuring options.
“Weakened consumer spending is also making it challenging for some businesses to increase their sales and offset the additional debt servicing costs and other financial pressures,” said CAIRP.
“Some businesses may not be able to manage the increases to their monthly bills, especially if they are already finding it difficult to drum up sales. That strain, combined with any additional financial challenges or setbacks this year could force businesses to shutter,” said Bolduc.
“Often, we see business owners close up shop and simply walk away rather than taking formal steps to wind the business down or get restructuring advice.
“There’s always been churn on the business side. Businesses open. Businesses close. There’s a little bit more churn now and if this tells us anything it’s like businesses that are not viable are closing now. But we still have new businesses opening. The numbers are probably going to stay up there for 2024 and they may increase because a lot of small businesses got that (Canada Emergency Business Account) loan and for a lot of small businesses that’s huge. If they weren’t able to pay it off, now they have to pay monthly payments, pay interest. For your small restaurant for example, it might be their whole profit margin.”
