Business bankruptcies rose more than 41% last year as pandemic-related debts mount

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Corporate insolvencies jumped more than 41 percent in 2023, according to data released Friday by Canada’s top financial regulator.

The report from the Office of the Superintendent of Bankruptcy shows that the total number of insolvencies, meaning those filed by businesses and consumers, increased by 23.6 percent last year.

High corporate insolvency rates “tell a story that worries us a little bit, which is that we are essentially seeing a very difficult economic climate for many companies” amid low economic activity, said Pedro Antunes, an economist in head of the Conference Board of Canada.

“Profits have fallen and we’ve seen the stress of CEBA loan repayments, and perhaps other stresses coming into play,” he said, adding that there could be more losses. jobs in the coming months.

He added that if the situation begins to deteriorate, the Bank of Canada still has the option to lower interest rates, which would help businesses repay their loans and reduce the need to cut jobs.

“But we’re at this crucial point. We’re at this moment where everyone is kind of holding their breath to see what’s going to happen,” he noted.

The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) said in a statement that Friday’s figures mark the largest increase in corporate insolvencies in 36 years of records. Analysts expected businesses to be hit hard in 2023, with many falling behind on their pandemic-related loan payments.

Finance Minister Chrystia Freeland said on January 23 that a quarter of small businesses that took out emergency loans under the Canada Emergency Business Account had missed the forgiven repayment deadline partial from January 18.

“Many companies are already on the razor’s edge. The additional costs of servicing their debts due to rising interest rates will mean even less room to cover rising costs for businesses by 2024,” said André Bolduc, President of CAIRP .

The cost of living, a major factor

A man with a neutral expression and a blue suit jacket stands next to a staircase.
Richard Goldhar, a licensed insolvency trustee, says the phones aren’t ringing in his Toronto bankruptcy practice. (CBC)

Insolvency figures take into account bankruptcies and creditor proposals. In the latter case, a person in debt formally offers their creditors a different arrangement to repay the money they owe. They can pay a percentage of their original debt or negotiate the repayment period, or a combination of both.

Richard Goldhar, a licensed insolvency trustee who helps clients with such arrangements, says the phones don’t ring in his Toronto office.

“There’s a buzz when you go to a place and there’s a lot of people. We have that energy,” Goldhar said. His firm files for bankruptcy or bankruptcy proposals on behalf of individuals and businesses, then helps them restructure their debts.

Consumer insolvencies alone increased by 23 percent last year, according to the report released Friday. Goldhar said the cost of living is the biggest contributing factor to his clients’ personal bankruptcy.

“Food costs, car costs, gas costs, just the daily cost of living,” he said.

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Between these expenses, plus rising credit card debt and the surge in payday loans (short-term loans with high fees), as well as high interest rates for those refinancing their mortgage loans, Goldhar said his clients face many levels of financial stress.

Credit card debt is a particularly big factor, with total balances hitting an all-time high of $11.34 billion in the fall, an increase of 16 percent from the same period last year, according to a December study. report by the credit bureau Equifax. (This figure does not include mortgage debt.)

The numbers are rising after the low of the pandemic

Consumer bankruptcies fell to a record level at the start of the pandemic, with just 6,700 people having filed for insolvency or submitting a proposal to creditors in April 2020, a 43% drop from the previous year. The government had introduced financial supportwhile mortgage payments were deferred.

“There has been an excessive increase since the pandemic until today, because during the pandemic … the number of cases fell to such a lower number that the increase seems crazy since then,” Goldhar said.

The low levels of bankruptcy that began during the pandemic “stayed that way for households until very recently,” Antunes said.

Today, those numbers are starting to show, particularly for proposals consumers filed with creditors, which increased 28.3 percent last year.

“It means that, essentially, households have gotten themselves into too much trouble and they are trying to negotiate their way out of a difficult situation,” Antunes said.

Salaries are also a factor. Even though wages have increased, they are not keeping pace with inflation, forcing people to borrow money while interest rates are still high, at 5 percent.

Wages also play a role in rising corporate insolvencies among Goldhar’s clients, he said, as employees demand better wages and companies struggle to balance those increases.

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