Business insolvencies shot up by more than 41% last year, as pandemic debts mount

Business insolvencies jumped by more than 41 per cent in 2023, according to data released Friday by Canada's top financial regulator.

The report from the Office of the Superintendent of Bankruptcy showed that the total number of insolvencies — meaning those filed by both businesses and consumers — was up by 23.6 per cent last year.

The high insolvency rates for businesses are "telling a story that we've been a little concerned about, and that is essentially that we're seeing a very tough economic climate for a lot of businesses" amid low economic activity, said Pedro Antunes, chief economist at the Conference Board of Canada.

"Profits have plummeted and we've seen the stresses of CEBA loan repayments due, and perhaps other stresses coming into play," he said, adding there might be more job losses in the coming months.

He said that if things start to unravel, there's still room for the Bank of Canada to lower interest rates, which would help businesses repay their loans and reduce the need for job cuts.

"But we're at that crux. We're at that moment where everybody's kind of holding their breath to see what's going to come of this," he noted.

The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) said in a statement that Friday's numbers marked the sharpest increase in business insolvencies in 36 years of records. Analysts were expecting businesses to be hit hard in 2023, with many having fallen behind on their pandemic loan repayments.

Finance Minister Chrystia Freeland said on Jan. 23 that a quarter of small businesses that took out a Canadian emergency business account (CEBA) loan had missed the repayment-with-partial-forgiveness deadline of Jan. 18.

"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 CAIRP chair André Bolduc.

The insolvency numbers take bankruptcies and creditor proposals into account. The latter is when a person in debt offers a formal proposal to their creditors asking for a different arrangement to pay back the money they owe. They might pay a percentage of their original debt or negotiate the repayment deadline, or a combination of both.

Richard Goldhar, a licensed insolvency trustee who assists clients with such arrangements, says things are busy at his Toronto-based firm.

"Our staff are always talking to clients now, the phones are ringing all the time," said Goldhar. His firm files bankruptcy or bankruptcy proposals on behalf of individuals and businesses, then helps them restructure their debts.

Consumer insolvencies alone rose by 23 per cent last year, according to Friday's report. Goldhar said that the cost of living is the highest contributing factor to personal bankruptcy among his clients.

"Food costs, car costs, gas costs, just the daily cost of life," he said.