CAIRP: Q1 2022 Canadian Insolvency Statistics

Year-over-year business insolvencies up 33.8% in Q1
May 18, 2022

TORONTO – May 12, 2022 – Business insolvency filings in Canada rose 33.8 per cent in the first quarter of 2022 compared to the same quarter last year, the highest year-over-year increase in 31 years, according to records from the Office of the Superintendent of Bankruptcy. The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) says the COVID-19 pandemic is the primary reason behind the increase and cautions that inflationary pressures and rising interest rates could also push the number of insolvency filings up further.

“The number of businesses becoming bankrupt or filing proposals is growing, and likely to worsen under the stress of inflation and as the cracks begin to show following the withdrawal of pandemic-related government support,” says Jean-Daniel Breton, Chair of CAIRP, the national voice on insolvency matters in Canada. “The support measures, together with a heightened level of creditor patience, prevented an initial spike in business insolvencies. However, the reversal in the recent trend of decreasing insolvency filings, seen over the last 2 years, puts in evidence the economic damage caused by the pandemic,” explains Breton.

In the first quarter of this year, 807 business insolvency proceedings were filed under the Bankruptcy and Insolvency Act, up 10.1 per cent compared to the previous quarter and catching up to levels seen at the onset of the pandemic in the first quarter of 2020. For the 12-month period ending March 31, 2022, business insolvencies are up 7.1 per cent compared with the 12-month period ending March 31, 2021.

“With inflation now at a 30-year high and the Bank of Canada looking to correct with several interest rate increases this year, it stands to reason that we could see even further surges in the rate of business insolvencies,” says Breton.

At a time when many businesses are working on recovery, supply chain disruptions and the rising costs of everything from fuel to raw materials are putting them under further strain. Additionally, with interest rates on the rise, debt will become more expensive, putting more struggling businesses at risk of default.

“Budgeting for Canadian businesses has never been more challenging. Many fixed costs, such as rent and interest payments, remain due while the cash flow intended to meet these obligations has dwindled. While there is no ‘right way’ to navigate all the moving parts and uncertainty, owners should seek professional expertise for guidance on how to implement new strategies or restructure their debts,” says Breton.

Licensed Insolvency Trustees help businesses maximize the possibility of preserving ongoing business operations and provide expertise to facilitate restructuring and corporate workouts. With years of training, solid accounting expertise and extensive knowledge of governing legislation, they are uniquely qualified to help businesses restructure or rehabilitate.

“Small business owners often overlook formal steps that can be taken to wind down the business. Simply walking away from the business instead of seeking counsel from a Licensed Insolvency Trustee eliminates any opportunity to restructure the business into a going concern or if that cannot be achieved, to optimize the recovery for creditors and employees,” explains Breton.

Breton says businesses in sectors affected by fluctuations in costs and supply chain pressures, as well as high energy users, are most vulnerable in the current environment. The latest insolvency data revealed that the sectors registering the biggest increase in the number of insolvencies for the 12-month period ending March 31, 2022 compared to the previous period were the construction and the transportation and warehousing sectors. The biggest decreases were seen in the retail trade and the real estate and rental leasing sectors.

Consumer insolvencies observe slight uptick quarter-over-quarter, with larger jumps likely ahead

A total of 23,153 insolvency proceedings were filed by individuals in the first quarter, increasing four per cent over the previous quarter and decreasing 2.8 per cent compared to the same quarter last year. The number of new consumer insolvency filings remains 30.3 per cent lower than the same quarter of 2020, and 28.2 per cent lower than 2019.

Vice-Chair of CAIRP and Licensed Insolvency Trustee, André Bolduc, points out that while quarterly consumer insolvencies remain below pre-pandemic levels, rising interest rates and inflation could begin to push that number upwards at a faster rate.

“Increasing cost-of-living on the heels of the pandemic has put many Canadians in a tough spot financially as the fallout becomes evident in the coming weeks and months,” says Bolduc, who has observed a marked increase in the number of people seeking debt help in March.  

While only a small quarterly uptick in consumer insolvencies was registered in Q1, there was a 24.4 per cent jump in filings from February to March, the largest monthly rate of increase in 13 years. The surge could be an early sign of some consumers buckling under the pressure.

“Anyone with a variable rate loan will see carrying costs move higher. For households already struggling, even a one per cent increase in interest rates can put them in a position where they are unable to service their debt. Anyone experiencing debt-related financial challenges should seek professional guidance as soon as possible,” says Bolduc.

Licensed Insolvency Trustees should be the first point of contact for Canadians in severe financial difficulty and struggling with debt. They are Canada’s only federally-regulated debt professionals who are legally and ethically bound to provide accurate, unbiased advice. With the ability to offer legal protection from creditor actions, collection calls and wage garnishments, they are the professionals who can best guide insolvent individuals through debt-relief options such as consumer proposals and bankruptcy.

Most Licensed Insolvency Trustees across Canada offer free consultations. Individuals facing debt problems can receive guidance with no commitment. To find a CIRP designated, government-regulated Licensed Insolvency Trustee visit: www.cairp.ca/find-a-lit.html