Canadian small businesses have only seen things get worse after the pandemic. Office of the Superintendent of Bankruptcy (OSB) data shows business insolvencies surged in Q4 2023. The surge in fillings helped to make last year the largest annual growth for insolvency filings. Experts warn as bad as the data is, it’s actually a lot worse since most shuttering businesses aren’t even considering any debt relief options. Instead, they’re just closing.
Canadian Business Insolvencies Climb 35% In Q4
Canadian businesses ended the year with a brutal quarter. Insolvencies rose 34.7% to 1,003 filings in Q4, rising about 51.6% higher than the same quarter a year before. The quarterly jump contributed to an unusually big year for insolvencies.
Canadian Business Insolvencies Have Never Grown This Fast
Canada has never seen this many insolvencies hit the market in a single year. Regulatory filings show 4,810 insolvencies in 2023, an increase of 41.4% from a year before. Growth at this scale has never been seen in the past 36 years of filing data. Experts attribute the issue to a combination of problems that have made this a challenging time to continue operations.
“Businesses have been struggling to cope with a myriad of financial challenges over the past year, including higher input costs, wage costs, and debt servicing costs, exacerbating the rocky footing many have been on ever since the pandemic,” says André Bolduc, the Chair at CAIRP, an industry organization representing insolvency professionals.
Bolduc isn’t just seeing a sharp uptick of insolvency filings, but many businesses are now in a hole too deep to dig out of.
“… [the] debt accumulated by businesses during the pandemic lockdowns, are weighing heavily on many Canadian businesses and, in some cases, making them no longer viable or in need of debt restructuring options,” he explains.
Even More Businesses Walk Away Without Considering Options
In other words, rising insolvencies don’t reveal the whole picture—things are much worse. Bolduc points to national statistics estimating 44,236 businesses closed in October, nearly 5,000 more than opened over the same period. These companies are no longer just being replaced, indicating more effort should be placed on keeping them operating if possible.
“Often, we see business owners close up shop and simply walk away rather than taking formal steps to wind the business down or get restructuring advice,” explains Bolduc.
Further explaining, “These business owners are missing out on professional guidance on restructuring and corporate workouts that could preserve the ongoing business operations.”
However, preserving the businesses still leaves the entrepreneurs with a challenging operating environment. Typically the peak of every housing cycle sees the displacement of consumption towards “inefficient” or “non-productive” allocation, such as rents. If these businesses could mitigate the high debt loads and rising costs, does their customer base still have discretionary spending to consume their products and services?
