Shoppers walk past a boarded up storefront on Saint-Catherine Street in downtown Montreal, on Dec. 19, 2023.Christinne Muschi/The Canadian Press
Business insolvencies in Canada are hitting their highest point since the Great Recession, new data show.
According to the federal Office of the Superintendent of Bankruptcy, 2,003 business insolvencies were filed from Jan. 1 to March 31 of this year. Of those, 1,599 were bankruptcies and 404 were proposals, which is a legal option to negotiate lower debt repayment with creditors.
The number of insolvencies was up 32 per cent from the previous quarter, and 87 per cent from the same quarter last year.
This continues a steady climb in filings over the past two years. Insolvencies had hit a low point early in the COVID-19 pandemic because of government-support programs and rock-bottom interest rates – both of which are now gone.
Historical data show the first quarter of 2024 is the highest number of insolvencies in a quarter since the beginning of 2008, early in the global financial crisis.
The vast majority of insolvencies were in Quebec (1,125) and Ontario (634). André Bolduc, a licensed insolvency trustee at BDO Canada and chair of the Canadian Association of Insolvency and Restructuring Professionals, said the number of insolvency filings in Quebec tend to be higher than other provinces because companies there face stricter penalties for not filing. Outside of Quebec, he said, owners are more likely to just walk away from failing businesses.
The sector with the highest number of insolvencies was accommodation and food services, with 357, or about 18 per cent of the total.
Kelly Higginson, president of Restaurants Canada, said the early months of the year are always tough for her industry because of lower consumer demand. But this year was worse.
“Costs are way up across the board, foot traffic is not up to prepandemic levels and there’s a lot of debt,” Ms. Higginson said.
Other industries with a high number of insolvencies included construction (250), transportation and warehousing (198), retail (197) and manufacturing (166).
A paper published in October by two federal researchers – Amélie Lafrance-Cooke at Statistics Canada and Alex McDougall at Innovation, Science and Economic Development Canada – found industries with more valuable equipment and assets, such as manufacturing, were more likely to go through the formal bankruptcy process than other sectors, rather than have owners just walk away.
“Businesses with assets to preserve and potentially active creditors are less likely to exit without a formal process to settle debts and liquidate assets,” the researchers wrote.
One of the most significant events for small businesses in the first quarter was the initial repayment deadline for the Canada Emergency Business Account (CEBA). Those government-backed loans, of $40,000 or $60,000, were made in the early months of the pandemic. Businesses that paid them back by Jan. 18 had the amounts partly forgiven and did not pay interest. Those that failed to pay back the loan by then, or that did not renegotiate by a later deadline, had to begin paying it back monthly with additional interest.
Mr. Bolduc said there are a combination of reasons for why businesses are struggling now, but the CEBA repayment deadline “certainly didn’t help.”
Katherine Cuplinskas, spokesperson for Finance Minister Chrystia Freeland, said nearly 800,000 businesses had repaid their CEBA loans, out of about 900,000 recipients. She said the Department of Finance does not expect CEBA to have had a negative effect on the economy because the government believes businesses had a long enough time to plan on how to deal with the debt.