CAIRP: Q2 2021 Canadian Insolvency Statistics
TORONTO, ON – August 16, 2021 – Despite the continued financial impact seen during the height of the pandemic, the number of Canadian businesses filing insolvency remains near an all-time low. Compared to the first quarter of 2021, which had the lowest number of business insolvencies on record in 35 years, business insolvencies in the second quarter increased just 0.8 per cent.
The 2021 filing data has so far defied earlier expectations that the pandemic would continue to push waves of businesses into insolvency. Given the extension of some government support programs through the end of October, the Canadian Association of Restructuring Professionals now expects only a modest increase in business insolvencies through the next quarter.
“Business insolvencies continue to be artificially suppressed due to government supports. Another reason the insolvency trend appears decoupled from the current economic environment is that many company principals are choosing to walk away rather than formally winding down their business,” says Mark Rosen, Chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), the national voice on insolvency matters in Canada.
He points to a recent report from Statistics Canada revealing that 120,446 businesses closed in the first quarter of this year alone. The staggering number represents a combination of small firms going out of business and large firms either closing temporarily or permanently closing their doors. During the same quarter, only 603 companies went through formal insolvency proceedings.
“Many rescued-by-government-support organizations are delaying the inevitable. As they continue to accumulate losses, borrow more, and become saddled with debt well over their ability to repay, their risk of insolvency grows every day. Many choose to walk away rather than consider formal restructuring options,” says Rosen.
These “walk-away” debtors are a growing concern in the aftermath of the pandemic. Walking away without professional guidance eliminates any opportunity to rehabilitate viable businesses, which can sometimes be accomplished with the advice of a Licensed Insolvency Trustee during the restructuring process. Furthermore, businesses that close their doors without formal proceedings may abandon assets that could be liquidated to compensate creditors and suppliers, forcing write offs or costly legal and collection actions.
“The insolvency process in Canada should be a safety valve for any businesses in financial distress. Once a business is distressed, for whatever reason, it is in everybody’s interest – theirs and their lenders’– that they get professional advice. Even small business can and should benefit from restructuring options that may help them avoid filing for bankruptcy and get them back on their feet,” advises Rosen.
For the 12-month period ending June 30, business insolvencies were down 22.2 per cent compared to the previous year. The two sectors that registered the biggest decrease were construction and retail trade. Mining and oil and gas extraction; and finance and insurance experienced the biggest increase in insolvencies.
Provincially, all saw a decline in business insolvencies, with Nova Scotia, Saskatchewan, Newfoundland and Labrador, and British Columbia experiencing the largest decreases compared to last year. In Nova Scotia and Saskatchewan, they are down 65 per cent and 50 per cent respectively for the 12-month period ending June 30, 2021, compared to last year. Newfoundland and Labrador saw a 43.5 per cent decline and BC was down 29.9 per cent for the same 12-month period.
Consumer Insolvencies Sit Below Pre-Pandemic Level
The quarterly volume of consumer insolvencies remains below the pre-pandemic level. Over 22,800 Canadians filed for insolvency or bankruptcy in the second quarter, down about 35 per cent compared to prior to the start of the pandemic and down 3.9 per cent compared to the first quarter of this year. For the 12-month period ending June 30, the number of Canadians who filed decreased by 25.7 per cent compared to the previous year.
Regionally, Quebec (-9.9%), Prince Edward Island (-8.7%), Saskatchewan (-7.2%), Ontario (-5.6%) and Nova Scotia (-1.6%) experienced a quarterly decline. Newfoundland and Labrador (13.2%), New Brunswick (4.1%), Manitoba (4.1%), British Columbia (3.6%), and Alberta (0.8%) all experienced increases in the second quarter compared to the previous.
“The wild card is that a lot of Canadians have done well financially during the pandemic, but those impacted most – such as low wage earners and those employed in the service industry – have been teetering on the edge waiting to see if circumstances improve,” says André Bolduc, executive board member of CAIRP and Licensed Insolvency Trustee. ”The unequal and slow comeback for those most impacted is made worse by the uncertainty that persists.”
The pandemic has also brought about changes to the makeup of household debt of Canadians. While credit card debt has declined, many households have taken on large mortgages relative to their income which could put some in precarious financial situations if interest rates increase.
Though the timing is difficult to predict since so much depends on the longevity of virus-related financial assistance programs and interest rate fluctuations, Bolduc expects consumer filings to head upward, at least back to 2019 levels, in the coming year or two.
“There is still a lot of uncertainty, and that has suspended many in a holding pattern. Few seek professional help at the onset of debt trouble which is unfortunate because the longer they wait, the worse their situation becomes. The first step for anyone struggling is to get a clear picture of their debts and to devise a plan. Doing this on your own can be challenging, so it is important to seek advice from a professional,” he advises.
Licensed Insolvency Trustees are the only professionals authorized to administer insolvency proceedings, such as consumer proposals and bankruptcies. Regulated by the federal government, they take a customized, unbiased approach to help individuals and businesses make informed decisions to deal with debt.