Canadian business insolvencies in the second quarter hit their highest level in a decade, according to new data, suggesting high inflation and interest rates are starting to bite into bottom lines.
There were 1,090 commercial bankruptcies and proposals in the quarter ending June 30, according to figures released Thursday from the federal Office of the Superintendent of Bankruptcy. That was 37 per cent higher than the same quarter last year, and the highest since the fourth quarter of 2014.
Business insolvencies had been trending down for years and hit their nadir in 2021, as federal pandemic support programs and rock-bottom interest rates kept commercial enterprises from failing. That trend turned around in 2022 and 2023, as interest rates rose and government aid ceased.
“We’re catching up after COVID,” said Patrick Gill, senior director of operations and partnerships of the Business Data Lab at the Canadian Chamber of Commerce.
The chamber’s survey on business conditions, conducted with Statistics Canada, showed that 56 per cent of businesses in the second quarter cited inflation as an obstacle, followed by input costs (40 per cent) and interest rate/debt costs (38 per cent). The survey was based on responses from 15,401 businesses in April and May.
However, Mr. Gill noted, 74 per cent of businesses still felt optimistic about the year ahead.
The industry with the highest share of insolvencies in the second quarter was accommodation and food services, representing 16 per cent of the total, but filings in that sector were actually down from the previous quarter. Restaurants and hotels were some of the businesses most affected by lockdowns and travel restrictions.
The second-biggest industry for insolvencies was construction, with 15 per cent, and those numbers have continued to rise in recent quarters. The number of insolvencies in the construction sector were up 22 per cent over the same quarter in 2022.
Dave Wilkes, president of the Building Industry and Land Development Association, said builders have been under pressure from rising materials costs, and the pain has been felt most acutely among smaller companies. For example, Statistics Canada’s construction price index for residential buildings has risen 65 per cent between the second quarter of 2020 and the second quarter of 2023.
At the same time, high interest rates have driven down demand among buyers. Mr. Wilkes said those factors are making it harder for the industry to meet the government’s targets for housing construction in the next decade.
“This period of softness is only going to put us further behind on achieving those goals,” he said.
The number of proposals grew faster than the number of bankruptcies, rising 53 per cent year over year. Proposals are a legal option to offer creditors a partial debt repayment or a longer timeline for repaying.
Jean-Daniel Breton, chair of the Canadian Association of Insolvency and Restructuring Professionals, said the increase in the number of proposals was a positive sign for the economy.
“That means the business owners are trying to restructure their debt, to make changes to their businesses to make them viable,” he said.