Canadian business and consumer insolvencies surge: CAIRP

Data released recently by the Office of the Superintendent of Bankruptcy (OSB) indicates that both business and consumer insolvencies in Canada surged in 2023, says the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).

CAIRP reported that business insolvencies in Canada surged by 41.4% in 2023 compared to the previous year, the sharpest increase in 36 years of records as  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. Business insolvency filings rose 34.7% in the fourth quarter of 2023 compared to the previous quarter, and more than doubled (51.6%) compared to the same quarter of 2022.

Also, annual consumer insolvency filings for 2023 increased 23.0%, the fastest rate of increase in 14 years, 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, explained CAIRP.

Andre Bolduc

“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 CAIRP, the national voice on insolvency matters in Canada.

“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. These business owners are missing out on professional guidance on restructuring and corporate workouts that could preserve the ongoing business operations.

“Compounding the financial impacts of inflation and higher interest rates, many Canadians have not seen their income grow at the same pace as the cost of their daily expenses, making it increasingly difficult to manage bills and service debts. Without additional sources of income or a pay raise, households may feel they need to cut back further on spending habits or take on more debt to keep pace.

“Job loss or changes such as reduced working hours can be major contributors to insolvency. Many households simply don’t have the emergency savings to help supplement the income loss and weather those periods of financial instability.”

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.

As of January 19, business owners who were unable to repay their CEBA loans are now incurring a five percent interest charge and must make monthly payments on what was previously an interest-free loan with no monthly payments. Simultaneously, business owners who rushed to find alternative financing to pay their government loan by the January deadline or refinanced to pay the loan by March 28 to receive partial debt forgiveness, are now facing higher interest rates on their remaining debt, explained CAIRP.

“Many businesses are already on a razor’s edge. The additional costs to service their debts due to higher interest rates will mean even less room to cover increasing costs of business going into 2024,” said Bolduc.

The organization said consumer insolvencies increased 4.4% in the fourth quarter of 2023 compared to the previous quarter. Consumer insolvency filings grew 22.9% in the fourth quarter of 2023 compared to the same quarter of 2022.

It said job losses or employment changes in certain sectors could cause additional strain on households. Also, mortgage renewals may also emerge as a catalyst for a continued upward trend in insolvencies. As renewals approach, homeowners managing now at low-interest rates may not be able to keep up with further increases in monthly expenses.

“Those who are unable to supplement their income sufficiently to meet the additional costs of their mortgage at higher rates in the long term could be at risk of insolvency,” said Bolduc.

Mario Toneguzzi