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Canadian Business Bankruptcies Surge – Support Your Local Small Businesses

As pandemic restrictions ease and life begins to feel a little more normal, Canadian businesses continue to struggle. For many business owners, the last two years have been a mess of lockdowns, restrictions, and trying to find employees. 

According to new data from the Canadian Federation of Independent Business (CFIB), only 40% of small businesses are back to normal revenues, and only a quarter of business owners (27%) report they are fully recovered. As a result, many Canadian businesses have decided they can no longer keep going and are deciding to close their doors for good. This article explores the state of Canada’s business Bankruptcies and what to expect moving forward. 

Business Insolvencies Are on the Rise

According to the Office of the Superintendent of Bankruptcy, in the first quarter of 2022, there have already been 807 business insolvencies in Canada, including 616 business Bankruptcies and 191 Proposals. This is up from 733 insolvencies in the last quarter of 2021, with 579 business Bankruptcies, and 154 Proposals. Compared to the first quarter of 2021, business insolvencies have risen by 33.8%. This is the highest year-over-year increase in 31 years, according to the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). 

Topping the list of insolvencies in the first quarter of 2022 are businesses in the areas of construction (118), transportation and warehousing (83), and retail (76). Food and accommodation services also remain high with 91 insolvencies which are down from 130 in the last quarter of 2021.   

Corporate insolvencies

Corporate insolvencies were also up in the first quarter of 2022 with a total of 584 insolvencies. Corporate Bankruptcies account for 477 and Proposals for 107. This is up from 578 insolvencies in the last quarter of 2021, with 486 Bankruptcies and 92 Proposals. Compared to the first quarter of 2021, corporate insolvencies have risen by 23.7%  

Factors Contributing to Canadian Business Bankruptcies 

When it comes to what is causing the increase in Canadian Bankruptcies, it’s a combination of factors. During the pandemic, the CAIRP reported a record-low overall, in the number of insolvencies. This is not typically what happens when there is an economic recession. However, the decline was largely due to the pandemic supports supplied by the federal government, as well as low-interest rates and debt deferral programs. 

Now that these supports have largely gone away, many Canadian businesses that were just getting by can no longer afford to keep it going. The effects of the lockdowns and restrictions from the pandemic are becoming more apparent. Mix this with other challenging factors faced by the national and local economy, and it’s easy to see why business Bankruptcies are on the rise. Some of the other contributing factors include:  

  • Rising inflation. Inflation is the highest it’s been in over 30 years causing the price of nearly everything to increase. 
  • Rising interest rates. Rising interest rates are also making it more expensive for businesses to pay their bills and continue functioning. 
  • Debt. Even with government support, many business owners still had to take on large amounts of new debt to stay afloat. According to CFIB president Dan Kelly, “Two-thirds of small businesses (65%) have had to take on debt, at an average of $160,000, just to survive the past two years.” So now that supports are gone, they are left to pay back their debts with rising interest rates.
  • Labour shortages. Many business owners are struggling to find employees despite offering higher wages. 
  • Supply chain issues. Disruptions to the supply chain are making it difficult for some businesses to get the supplies they need to even function. 

This is a long list of factors stacked up against Canadian business owners. Not to mention, there is still a lot of uncertainty about what is to come. Will there be another COVID wave that requires additional restrictions and shutdowns? How long will inflation and interest rates continue to rise? 

What to Expect for Canadian Bankruptcies Moving Forward

It’s normal to see business coming and going, opening and closing. However, CFIB president Dan Kelly said that it is still possible for as many as one in six small businesses in Canada could close their doors. Now that pandemic supports are over, businesses are facing a tough reality. For many, it’s a juggling act of trying to pay back debts at higher interest rates while raising wages to attract talent and trying to keep up with rising inflation. 

Who Can I Talk to About Business Bankruptcy?

If you are struggling to keep your business open, it’s time to speak with a Licensed Insolvency Trustee (LIT). You might feel like walking away from your business is the only choice but, you may have other options. An LIT can talk to you about how you might use a Division I proposal to restructure your business. Restructuring involves negotiating with your creditors to see if you can reach a deal. This can provide your business with some additional space to get things back on track.  

Larger corporations carrying debt in excess of $5 million can consider corporate restructuring under the Companies Creditors Arrangement Act (CCAA). The CCAA provides short-term protection from creditors to give them an opportunity to restructure their business and finances. The goal is to avoid Bankruptcy or foreclosure and continue functioning. 

If you decide that Bankruptcy is the right option for your business, an LIT can guide you through the process. An LIT is the only professional in Canada that is authorized to administer government-regulated insolvency proceedings, including Bankruptcies and Consumer Proposals. If you’re dealing with the burden of debt and you’re sick of trying to keep your business afloat, Bankruptcy can provide a sense of relief and a new beginning. 

Get Help With Your Debt Today

If you’re ready to get help with your debt, reach out to one of our Licensed Insolvency Trustees today at Allan Marshall and Associates. We can book you a 20-minute call with an expert to discuss your specific debt issues and we can walk you through your business options. Give us a call at 1-888-371-8900 or reach out online

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Allan Marshall & Associates Inc.

Allan Marshall & Associates Inc. is a Licensed Insolvency Trustee firm in British Columbia, Alberta & the Maritimes. Our dedicated writing team consists of LIT's, counsellors, and debt administrators that help to write informative articles and answer questions about your debt issues.

We are licensed by the Federal Government of Canada to administer Personal Bankruptcies, Consumer Proposals, other insolvency services such as Credit Counselling. We have the knowledge and experience to assess your situation and offer the best advice for your particular need, whether you are a first time bankrupt or simply struggling to make ends meet.