Canada’s increasingly hostile business environment is starting to show up in the data. Office of the Superintendent of Bankruptcy (OSB) data shows a sharp increase for business insolvencies in Q1 2024. A weak consumer combined with a soaring cost of doing business has led to a surge in businesses seeking protection from creditors. Experts warn the issue is likely much worse, since the vast majority of businesses that shutter don’t make an insolvency filing, they simply close their business.
Canadian Business Insolvencies Jump 87% Higher
Canadian business insolvencies have climbed sharply over the past few months. The OSB received 2,003 business insolvency filings in Q1 2024, an increase of 31.7% from the previous quarter. First quarter filings were a whopping 87.2% higher than the same quarter last year.
Canadian Business Insolvencies
Canadian business insolvency filings in the first quarter of each year.
Source: OSB; Better Dwelling.
Canada has seen a big uptick in the number of filings over the past year. The OSB received 5,743 filings over the 12-month period ending in Q1 2024, an increase of 57% compared to a year prior. There’s a combination of factors at work here, with a weak consumer at the core of the issue.
“Over that period, the largest chunk of insolvencies was in accommodation and food services (15.5% of total), construction (13.6%) and retail trade (11.1%),” explains Shelly Kaushik, an economist at BMO.
Adding, “All three reflect discretionary spending (e.g., less renovations hitting construction), which has been struggling amid elevated interest rates.”
Canadian Business Weakness Worse Than Insolvency Data Reveals
Despite the boom in population, theoretically providing more demand, insolvency experts warn the deck is slanted against businesses. “We are seeing signs of a significant rise in distress among Canadian businesses,” says André Bolduc, the chair of CAIRP, a national insolvency organization.
He warns, “many are still shouldering the burden of the pandemic, on top of high input and labour costs, declining consumer spending, and higher debt-carrying costs.”
The end of pandemic supports have also introduced additional complexity. The interest-free period for CEBA loans granted to businesses to help navigate the downturn, has now expired. Bolduc says the costs have added an additional expense on top of those factors, making it even more difficult to operate.
Canadian businesses may also be worse off than the data implies, since not all pursue restructuring. Rather than seeking formal restructuring of debt, many owners simply choose to close their doors and cease operations, according to CAIRP.
