Bankruptcies are on the rise in Canada as government aid ends and businesses grapple with a difficult post-pandemic recovery characterized by soaring costs, supply chain issues and labor shortages work.
The number of businesses filing for insolvency in the first quarter of the year jumped 33.8% from 2021, according to statistics released by the Office of the Superintendent of Bankruptcy Canada. A total of 807 companies filed for bankruptcy during the quarter, up 10.1% from the previous three months.
While the number of companies filing for bankruptcy is still slightly below pre-pandemic levels – 972 companies filed for insolvency in the first quarter of 2019 – the increase marks a return to a more normal market, according to Conference Board of Canada economic forecasting director Ted Mallet. He says the financial support provided by the government amid the COVID-19 pandemic has helped delay the spike in bankruptcies. The last of the federal COVID-19 support programs for businesses ended this month.
“If it hadn’t been for government support, we would have seen a lot more bankruptcies early on during the pandemic,” he said.
“We are now in, in many ways, a very different economy where some companies are doing very well and others have to pick up the pieces. To a large extent, that is what generally happens in economies anyway. There has always been a large number of companies entering and exiting the market.”
It remains to be seen whether more companies will file for insolvency in the coming months. But Dan Kelly, head of the Canadian Federation of Independent Business (CFIB), says he expects the number of businesses leaving it to continue to rise as many businesses face a return to normal slower than expected, combined with increased costs. and maturing debt.
“We said there will be a day of realization of the damage the pandemic has inflicted on small businesses, and it looks like that has started,” Kelly said in an interview.
“Many business owners say, ‘I don’t see a path to profitability,’ and make the decision to close their doors permanently.”
Skyrocketing Small Business Debt Levels
According to the CFIB, which has 95,000 members across the country, 65% of small businesses have taken on debt during the pandemic, with the average amount of debt reaching $160,000. At the same time, the group says that one in four small business owners (24%) are seeing their sales affected by the slow return to the office of inner-city workers.
“Sales have not returned to pre-pandemic levels for many … and costs have skyrocketed over the past few months,” Kelly said.
“The inflationary pressure is there for average Canadians, and it’s even more important for small business owners who see pressure on every line of their budget.”
Filing for bankruptcy is often the last resort for business owners, and the data doesn’t capture the number of businesses that close without going insolvent, Kelly notes. CFIB is calling on Ottawa to cancel more of the Canada Emergency Business Account (CEBA) program, which allowed businesses to get interest-free loans of between $40,000 and $60,000.
David Lewis, a member of the Canadian Association of Insolvency and Restructuring Professionals and partner at BDO, says the number of bankruptcy filings to exceed pre-pandemic levels will largely depend on economic factors and the how inflation and supply chain issues will be handled in the years to come. month.
Lewis also says filing for insolvency isn’t the only option available to struggling businesses and advises businesses to speak to professionals to understand the full list of options.
“If you’re feeling stressed about the day-to-day of your business, it’s probably worth calling a licensed insolvency trustee to see what your options are,” he said.
Alicja Siekierska is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.