Canadians are among the most indebted in the world, but managed to avoid signs of stress—until now. Office of the Superintendent of Bankruptcy (OSB) data shows insolvencies surged in April. Filings for the month just hit the second-highest level on record, driven by consumers.
About Today’s Data
Today we’re looking at total insolvencies, both consumer and business filings. Insolvencies involve an insolvent borrower handing over assets in exchange for debt relief. These are formal agreements done with the help of a licensed insolvency trustee (LIT). Both consumer proposals and bankruptcies are types of insolvencies. The type of filing is largely determined by the size of debt and assets at stake.
Insolvencies are one of the most misunderstood indicators. Most people hear rising bankruptcies and think the economy is getting worse. In reality, filings rise after the debt reaches a boiling point and borrowers seek relief. It’s a lagging economic indicator, only arriving after borrowers try juggling repayment. Rising insolvencies don’t tell us where we’re heading—they’re the pin on the map that shows where the economy is.
Canadian Insolvency Filings Hit A 17-Year High, Second-Biggest Month On Record
Canadian insolvency filings for the month of April.
Source: OSB; Better Dwelling.
The OSB received a mindboggling 13,010 insolvency filings in April, up 7.4% (+900 filings) from last year—a 17-year high, second only to April 2009 during the financial crisis. In fact, that was the only April in history to exceed the volume in this report. Great time to be a LIT, not so much for lenders or borrowers, apparently.
The consumer segment drove virtually all this pressure.
Canadian Consumer Insolvencies Hit Second-Biggest April On Record
Consumers made 12,580 insolvency filings in April, 8.0% (+934 insolvencies) more than last year. This was also a 17 year high, with 2009 being the only April with more filings. Almost 97% of insolvency filings are consumers, so it’s no surprise it determines the total trend. What is surprising is the volume of consumer filings. Canada isn’t used to seeing these kinds of surges.
Canadian Business Insolvencies Fall For A Second Straight Year
Businesses filed 434 insolvencies in April, actually declining 7.3% (-34) from last year. That’s right, they actually fell for the second consecutive year. By itself, this would be a very encouraging sign of business pressures easing. However, the number of businesses in Canada has plunged to its lowest level in nearly 3 years. At the same time, they’re shuttering at a record pace. Businesses aren’t seeking formal debt relief, but they’re failing silently. We know, sorry about always being the Debby Downer.
The business decline reveals the tricky nature of trying to understand insolvencies. Rising insolvencies confirm a weaker economy, but a decline doesn’t mean the opposite. In the case of April data, what appears as good news for businesses isn’t a positive indicator—it just doesn’t show bad news. Meanwhile, the near record volume of consumer insovlencies confirms households are facing pressures rarely seen outside of the country’s worst recessions.
random question. What happens when a business gets locked out by the landlord? Is the business bankrupt or the proprietor since they probably guaranteed it?