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Canada Has a Bankruptcy Problem: Insolvency Filings in 2023 Jump 40%

Published March 19, 2024 5:36 PM
Shraddha Sharma
Published March 19, 2024 5:36 PM

Key Takeaways

  • Bankruptcy filings in Canada saw a 40% YoY increase in 2023.
  • January 2024 reportedly witnessed nearly 800 bankruptcy filings.
  • The repayment deadline for interest-free pandemic loans has put pressure on small businesses.

Canada is facing an alarming rise in bankruptcy filings after a 40% jump in 2023. The Kobeissi Letter finds that the numbers have hit the highest rate in over a decade with nearly 800 bankruptcy filings in January 2024 alone. Small businesses are reportedly struggling to meet the repayment deadlines for pandemic-era loans. Does this mean that the Canadian economy is preparing for a downturn?

The Rising Tide of Bankruptcies

As per figures by Mondaq Canada recorded 1,108 business proposals against 3,702 business bankruptcies in 2023. The end of the year saw a notable decrease in business proposals. The year also started with scarce refinancing opportunities while businesses grappled with financial instability.

The beginning of 2024 has not shown any signs of improvement, with a large number of businesses declaring bankruptcy in January.

Small businesses, which constitute  about 33% of Canada’s GDP and employ two-thirds of the private workforce, are on the brink of crisis. A Reuters report  revealed that the end of government pandemic support, coupled with slowing economic growth and rising interest rates, has left thousands of small businesses vulnerable to bankruptcy.

The repayment of interest-free loans of approximately $45,000, granted during the pandemic, became a burden for many small businesses, as per The Kobeissi Letter.

Economic Outlook and Consumer Struggle

Reports of weakening Canada’s per-capita GDP made headlines but didn’t particularly raise much alarm for the state of the economy. 

Despite that, small businesses and consumers are facing financial difficulties. The March 2024  Canadian Maru Household Index revealed that 18% of respondents are at risk of defaulting on major loans or mortgages in the next 60 days. The figures match the record high level of financial distress recorded in September 2023.

For instance, The Body Shop recently declared bankruptcy in the US and Canada while facing difficulties in settling payments amid cash shortages. Canadian Overseas Petroleum declared bankruptcy in both countries while announcing restructuring plans.

Moreover, a report  from Equifax Canada highlighted a 52.3% increase in mortgage delinquency rates over 2023, with Ontario and British Columbia experiencing the most significant spikes. The growing financial pressure on Canadian households is reflected in the figures.

Underlining Economic Problems Persist

Canada’s bankruptcy problem might signal deeper economic issues as the crisis is impacting small businesses and consumers.

Fall in per-capita GDP, rise in bankruptcy filings and the financial strain on households raise concerns about the country’s economic stability. So much so that the potential for a technical recession is possible.

Businesses will have to navigate how they deal with end-of-pandemic-era supportive measures and do robust financial planning to weather the storm. But the situation could quickly turn into a cautionary tale of the post-pandemic economic reality.

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