Canada’s economy is beginning to normalize, including the number of businesses filing for insolvency. According to Office of the Superintendent of Bankruptcy (OSB) data, business insolvencies remain lower than pre-pandemic levels. Though in Q4 2021, there’s been a sudden surge of filings making up for lost time, rising at the fastest rate in 36 years.
Canadian Business Insolvencies Made The Largest Jump in 36 Years
Canadian business insolvencies are all of a sudden back from record lows. The OSB received 733 business insolvencies filed in Q4 2021, up 36.8% from the previous quarter. Filings are up 9.7% compared to the same quarter a year before but remain below pre-pandemic levels. A quarterly increase isn’t usually noteworthy, but this was the biggest jump in 36 years.
Canadian Business Insolvency Filings
The number of Canadian business insolvencies filed per quarter.
Source: OSB; Better Dwelling.
Business Insolvencies Are Still Relatively Low
The past quarter was the highest since the pandemic, but insolvencies are relatively low. There were 2,480 business filings in 2021, down 11.0% from the year before. There might be an increase in insolvencies, but overall they remain low. Still, the recent rise is worth noting as it might indicate a normalization.
Low Insolvencies May Be Understating Business Debt Problems
It’s important to note the low number of insolvencies doesn’t mean businesses aren’t facing hurdles. Low numbers doesn’t necessarily mean there aren’t problems, just a sign people aren’t making insolvency filings. This can be due to resources buying businesses more time, or a lack of understanding of insolvency.
“The figures do not tell the whole story because owners of small, fragile companies that were surviving through low-interest rates and government support may decide to walk away rather than consider insolvency or restructuring options,” said Jean-Daniel Breton, Chair of CAIRP, a national organization for insolvency professionals.
Individual business owners will often shutter and pay the debt off over time. Many owners elect to take on the debt personally (i.e., credit card, home equity loans, etc.) and pay it off over time. Forced business closures don’t necessarily result in an insolvency filing. “Struggling businesses may be under the mistaken notion that their only next course of action is shuttering their doors. But walking away isn’t always the only or best option,” said Breton.
There are some signs of credit normalizing, but the indicators are mixed. There’s a surge of business insolvencies, though it remains much lower than pre-pandemic levels. It’s the highest quarterly number for business insolvencies. Still, experts say this doesn’t reveal the full extent of the issue since many business owners absorb losses instead of making an insolvency filing.