A greater number of businesses continue to close in Canada, with business insolvencies spiking at a rate not seen in 37 years.
Data released by the Office of the Superintendent of Bankruptcy on Friday shows that business insolvencies in Canada increased 87.2% between the first quarter of 2023 and 2024.
The number of insolvencies between the two years increased from 1,070 to 2,003. Between the fourth quarter of 2023 and the first quarter of 2024, insolvencies increased from 1,521 to 2,003, a 31.7% increase.
Consumers weren’t immune from insolvencies, with consumer insolvencies increasing for the eighth consecutive quarter when measuring year-over-year increases, reaching the highest level since the fourth quarter of 2019.
Insolvencies among consumers in Canada increased by 14% between the first quarter of 2023 and 2024. Consumer insolvencies increased from 29,725 to 33,885 between the two years. Between the fourth quarter of 2023 and the first quarter of 2024, insolvencies increased from 31,813 to 33,885, a 6.5% increase.
On average, 372 Canadians filed for consumer insolvency daily in the first quarter of 2024.
“A perfect storm of economic challenges is brewing, with high mortgage renewal rates, soaring rental prices, and elevated costs of everyday necessities. The high cost of servicing debts is also compounding the financial strain for many Canadians and leaving them grappling with insurmountable debt burdens,” said André Bolduc, Chair of the Canadian Association of Insolvency and Restructuring Professionals.
The province with the highest annual increase in consumer insolvencies was Ontario, where they rose 19.4% year-over-year, followed by British Columbia at 17.7% and Quebec at 15.5%.
Conversely, Alberta saw the smallest increase among the provinces in business insolvencies, at only 1.9%.
Nunavut and Yukon experienced significant decreases in insolvencies, dropping by -80% and -6.7%, respectively.
Business insolvencies surging 87.2% was the largest annual increase in 37 years of records from the Office of the Superintendent of Bankruptcy, according to the CAIRP.
“We are seeing signs of a significant rise in distress among Canadian businesses. Many are still shouldering the burden of the pandemic, on top of high input and labour costs, declining consumer spending, and higher debt-carrying costs,” said Bolduc.
The actual number of business closures is even higher, considering many business owners decide to cease operations without pursuing formal insolvency proceedings.
Based on members surveyed by the Canadian Federation of Independent Business, only 10% of their members who considered closing their business would officially file for bankruptcy.
The increase in business insolvencies was 41.4% from 2022 to 2023.
Bolduc said that with the CEBA loan deadline passing, many businesses have taken on the additional burden of monthly loan repayments and accompanying interest.
CEBA loans initially offered interest-free loans up to $40,000 for small businesses and not-for-profits. The amount was increased to $60,000 on December 4, 2020.
Approximately 25% of the 898,271 CEBA loan recipients missed the deadline. The total funds provided for CEBA loans and expansions was $49.2 billion.
The government’s decision not to extend the CEBA deadline was “the straw that broke the camel’s back,” said Simon Gaudreault, chief economist and vice president of research at the CFIB.
Gaudreault said that other factors contributing to businesses filing for bankruptcy included lost revenue from public health closures, supply chain challenges, inflation, increased costs, rising interest rates, and labour shortages.
Statistics Canada’s most recent data shows that 43,121 businesses closed in January 2024.