The slowing Canadian economy has resulted in the first year-to-year increase in business insolvencies in almost two decades, according to data released by the Office of the Superintendent of Bankruptcy (OSB).
In a news release, Canadian Association of Insolvency and Restructuring Professionals (CAIRP), said business filings have increased by 9.9 per cent from a year ago while consumer insolvency filings have jumped by 15.2 per cent from a year ago.
The report said the number of businesses that failed in the past 12 months to September was up 4.1 per cent compared to the same period in 2018.
“The figures are evidence of a difficult period for some Canadian businesses,” said David Lewis, a board member of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), the country’s national association of insolvency and restructuring professionals.
“After nearly two decades of business insolvencies consistently on the decline year over year, we are seeing an upward trend that will likely extend into at least next year.”
Data indicates mining, oil and gas extraction, as well as the information and cultural industries, were the main drivers in corporate insolvencies, with both sectors seeing increases of more than 40 per cent.
Other significant increases for industries were in finance and insurance (+27.6 per cent) and professional, scientific, technical services (+20.6 per cent) and real estate, rental and leasing (+14.7 per cent).
“The data shows a broad spectrum of businesses across the country that are challenged by the current economic climate. It is not simply the businesses in energy-producing regions that are struggling,” said Lewis.
“Uncertainties across the global economy have been a contributing factor to the increase, as are domestic struggles with increasing interest rates and high household debt contributing to a slowdown in spending. For many companies, an insolvency filing is an effective way to deal with stalled growth and unpayable debt. We may start to see Canada’s unemployment rate creep up within the coming year if economic momentum continues to wane. Should that happen as expected, it could accelerate the already rising number of consumer insolvencies in the country.”
Personal insolvencies in Canada rose by 8.5 per cent from a year ago.
“There is a strong correlation between interest rate changes and consumer filings but we see a two to three year lag between rate increases and a growth in the number of insolvencies,” said André Bolduc, board member of CAIRP. “Sustained increases in living costs and debt servicing costs have created an environment in which more people are struggling to stick to their repayment terms.”
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