CAIRP: Q3 2021 Canadian Insolvency Statistics

Business insolvencies reach new record-low, steep decline in consumer insolvencies
November 10, 2021

TORONTO – November 10, 2021 – The number of Canadian businesses that commenced bankruptcy or restructuring proceedings reached a new record-low in the third quarter. 536 businesses went through formal insolvency proceedings in the third quarter, a 35-year low and 14.6 per cent decline compared to the same quarter last year. Business insolvencies dropped 11.8 per cent in the third quarter compared to the second, the largest quarterly decline since the second quarter of 2020 at the start of the pandemic.  

“Since the second quarter of 2020, business insolvencies have hovered around a 35-year low, and they now sit at the lowest level on record,” says Jean-Daniel Breton, Chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), the national voice on insolvency matters in Canada.

The figures, which are compiled by the Office of Superintendent of Bankruptcy, represent the period just before the expiry of a number of government support programs and the announcement of a transition away from broad measures to more targeted support programs, including the Hardest-Hit Business Recovery Program.

“With the reduction of government support measures, we may start to see a gradual normalization of business insolvencies. Many fragile companies are already at high risk of default given the lengthy disruption caused by the pandemic,” says Breton.

Government support programs are one obvious reason to explain the seemingly counterintuitive decline in business insolvencies, but the figures do not include “walk-aways” or small businesses that close down without considering insolvency or restructuring options.

“A small firm that closes its doors without professional guidance eliminates any opportunity to rehabilitate the business. It may also be abandoning assets that could be liquidated to compensate creditors and suppliers, and it may be preventing its employees from accessing support,” explains David Lewis, a corporate Licensed Insolvency Trustee and member of CAIRP.

Lewis cautions small businesses against simply walking away, explaining there may be other options on the table, such as restructuring, which can help rehabilitate a business by improving operations and reorganizing their financial liabilities, effectively reducing the business’ burden of debt so they can continue to operate. There are also measures to protect employees of those firms that are undergoing formal insolvency proceedings. For example, the Wage Earner Protection Program compensates eligible workers when their employer declares bankruptcy. This compensation is not available to employees of companies that shut down without formal proceedings.

“For many small business owners, personal finances are tied to business finances. They need professional, unbiased guidance to navigate through these complexities, to protect their personal finances and their employees, and to help them make informed decisions to deal with debt,” he adds.

For the 12-month period ending September 30, business insolvencies were down 20.2 per cent compared to the previous year. The two sectors recording the biggest decrease in the number of insolvencies were retail trade and accommodation and food services. Meanwhile, the largest increase in insolvencies was seen in mining and oil and gas extraction, as well as finance and insurance sectors. Across the provinces, Nova Scotia (-50%), Saskatchewan (-41.7%) and Alberta (-26.1%) observed the largest percentage decrease in business insolvencies in the third quarter compared to the previous quarter, while Manitoba (57.1%), Ontario (15.9%) and British Columbia (11.1%) were the three provinces to experience an increase in filings.

Q3 consumer insolvencies down nearly 40 per cent compared to pre-pandemic Q3 2019

Consumer insolvencies decreased 7.8 per cent in the third quarter compared to the second, the most significant quarterly decline since the pandemic began to ramp up in the second quarter of 2020. Compared to the third quarter of 2019, consumer insolvencies declined 39.2 per cent. Still, just over 21,100 Canadians commenced insolvency proceedings in the third quarter – about 230 each day.

“A jump in personal insolvencies has so far been averted, but Canadians have excessively high household debt, and the financial strain of the pandemic will be the match in the powder barrel for many families,” says André Bolduc, Vice-Chair of CAIRP and Licensed Insolvency Trustee.

He notes there is a gap between when individuals begin to experience financial distress and when they take the step to seek professional help. Particularly as government supports phase-out and transition, many Canadians will find it increasingly difficult to meet their obligations, forced to make tough decisions, in some cases whether to seek relief from debt through bankruptcy or make a proposal to creditors.

Licensed Insolvency Trustees are empowered to help individuals navigate these decisions. They are the only government-regulated debt professionals who can provide advice about all of the debt relief options and take a customized approach to find the most suitable option for each individual, which can include protection from creditors’ collection measures and a discharge from debt.

Bolduc says that while it can be difficult for people to admit they need debt help, seeking advice from a professional can unburden them from the stress of trying to cope with their financial troubles alone. Licensed Insolvency Trustees communicate directly with creditors on the individual’s or business’ behalf once a bankruptcy or a consumer proposal is initiated. This can help lift some of the weight off people’s shoulders by halting harassing phone calls from creditors or wage garnishments.

All provinces experienced a decline in consumer filings in the third quarter compared to the second quarter of 2021, with the largest percentage declines being across Atlantic Canada in Newfoundland and Labrador (-28.3%), Prince Edward Island (-17.9%), New Brunswick (-17.6%) and Nova Scotia (-12%). Consumer insolvencies for the 12-month period ending September 30 declined 15.8 per cent compared to the previous year.