Official stats are out and CAIRP says Canadian consumers and businesses are facing some tough challenges
Canada’s official insolvency stats are out and make for hard reading with an increased number of consumers struggling and more businesses failing.
The Office of the Superintendent of Bankruptcy Canada’s newly published figures for June show that overall insolvencies were down almost 3% from the previous month, with bankruptcies down 8% and proposals down 1%.
However, when considered year-over-year the impact that higher interest rates and inflation has had on the finances of Canadian consumers and businesses is clear: insolvencies up 19% from a year earlier with consumer filings up 20% and businesses up 21%.
For the 12-months to the end of June 2023, there was a 23% jump in consumer insolvencies and a 38% jump for business insolvencies and there were 1,090 business insolvency filings in the second quarter of 2023 alone, the highest quarterly volume since 2014.
Consumer budget squeeze
The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) says that for consumers, the cost-of-living crisis is becoming too much for many.
“Consumer insolvencies in Canada are steadily rising, reaching levels comparable to those observed before the pandemic,” said André Bolduc, Licensed Insolvency Trustee and CAIRP vice-chair. “The upward trend is attributed to escalating debt-carrying costs and inflation, with the potential for consumer insolvencies to surpass pre-pandemic averages later this year.”
He added that mounting debt combined with rising interest rates “may push more individuals to consider insolvency as a viable option, given the increasingly challenging task of managing their debt obligations in the current higher rate environment.”
Again, the advice is to seek professional help rather than ignoring financial struggles until they are beyond repair.
Businesses under pressure
CAIRP says that it’s interest rates that are pushing businesses to the edge.
“Higher borrowing costs are one of the biggest contributors to distress. Canadian companies may be either in need of more credit or are now faced with higher capital costs on heavy debt loads,” explained Jean-Daniel Breton, Chair of CAIRP. “On top of that, higher interest rates have weakened consumer demand.”
While the cocktail of pressures facing business owners may seem overwhelming, Breton says that it’s important that they don’t bury their heads in the sand, or worse, simply close the doors.
“Rather than opting to abruptly shut down their businesses and abandon them, certain business owners who face insolvency should consider seeking professional guidance regarding potential debt relief solutions to restructure or wind down their operations,” he said.
