Both consumer and business insolvencies dropped according to the latest stats
Canadians seem to be managing their debts well with insolvencies for consumers and businesses falling in the third quarter of 2021.
New stats from the Office of Superintendent of Bankruptcy reveal that business insolvencies were down almost 12% quarter-over-quarter and down almost 15% year-over-year.
Just 536 businesses went through the insolvency process in the quarter, a 35-year low.
For individuals, there was an 8% decrease quarter-over-quarter – the largest drop since the start of the pandemic – while the year-over-year figure was up 2%.
Looking at the difference from the pre-pandemic era, there was a 39% drop in consumer insolvencies in Q3 2021 compared to Q3 2019.
Despite the positive data, 21,100 Canadians went through the insolvency process in the third quarter, 230 each day, and risks remain for both individuals and firms as we move further from the safety nets provided by the government during the worst of the pandemic.
The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) has been crunching the numbers and warns there could be trouble ahead.
“A jump in personal insolvencies has so far been averted, but Canadians have excessively high household debt, and the financial strain of the pandemic will be the match in the powder barrel for many families,” explained André Bolduc, vice-chair of CAIRP and a Licensed Insolvency Trustee.
Bolduc added that those experiencing debt management issues often hold back from seeking professional help, meaning a lag between the start of problems and when they are reflected in official figures.
Atlantic Canada in Newfoundland and Labrador (-28.3%), Prince Edward Island (-17.9%), New Brunswick (-17.6%) and Nova Scotia (-12%).
Businesses on the brink
For businesses, the end of government support programs is not reflected in the latest insolvency stats as many were still getting help during the period covered.
That means that business insolvencies could begin to rise from the 35-year low of the third quarter, although not all struggling owners will go down the formal route, opting instead to walk away and leaving investors and others with losses.
“A small firm that closes its doors without professional guidance eliminates any opportunity to rehabilitate the business. It may also be abandoning assets that could be liquidated to compensate creditors and suppliers, and it may be preventing its employees from accessing support,” said David Lewis, a corporate Licensed Insolvency Trustee and member of CAIRP.
Failed businesses can often lead to financial issues for owners too and Lewis added that professional advice is paramount to avoid a personal fall-out from closing the business.
“They need professional, unbiased guidance to navigate through these complexities, to protect their personal finances and their employees, and to help them make informed decisions to deal with debt,” he urged.
