Consumer and business bankruptcies soar following an end to government aid

The number of insolvencies filed by Canadian businesses in 2022 surged by 37.2 per cent compared with 2021, according to the Office of the Superintendent of Bankruptcy.

There were 3,402 business insolvencies last year, up from 2,480 in 2021 according to the federal regulator. In Ontario alone, insolvencies filed by businesses was up 47.8 per cent last year compared with the year before.

Insolvencies, the inability to pay down debt, include both proposals - a formal agreement with creditors on the terms of debt repayment - and bankruptcies - when assets are surrendered in exchanged for the elimination of debts.

Business bankruptcies totalled 2,621 for the year, up from 1,942, while proposals filed by businesses amounted to 781, up from 538 in 2021.

President of the Canadian Federation of Independent Business Dan Kelly says the numbers are extremely concerning for businesses across the country and it's unlikely that insolvencies are going to slow down any time soon.

I am deeply worried about where this is headed. I don't think the worst is behind us," Kelly said, adding that 58 per cent of small business owners are sitting on pandemic debt."

In Ontario, the number of insolvency filings from independent businesses rose a whopping 80.9 per cent.

Meanwhile, the number of insolvency filings from Canadian consumers jumped 11.2 per cent in 2022 compared with 2021. There were 100,184 consumer insolvencies filed in 2022 compared to 90,092 in 2021. The consumer figures included 24,586 bankruptcies, down from 27,461 in the previous year, while proposals rose to 75,598 compared with 62,631 in 2021.

Several factors have contributed to the uptick in including rising inflation, which is driving up the cost of necessities like gas, food and electricity. Fluctuating interest rates are also having a significant impact on any loan payments or mortgage renewals.

With strict COVID-19 lockdown measures at the start of the pandemic, people were forced to stay indoors and spent less money, making it easier for them to save and pay off debt. But as health regulations loosened and businesses reopened, consumers began ramping up their spending once again.

Insolvencies actually declined during the lockdowns due to generous government aid, but the numbers are starting to rise rapidly now that the aid has been cut off.

We've been predicting for some time that the other shoe will drop as a result of the damage that was brought by the pandemic and the resulting aftermath of high inflation and a shortage of labour," Kelly said.

Sectors that saw some of the biggest increase in insolvencies were transportation and warehousing, up 52.1 per cent in 2022, as well as the construction industry, up 40.7 per cent.

New home sales have gone down substantially, which is going to put a damper on home construction because it's going to be harder to sell those houses due to due to lower prices," said David Macdonald, a senior economist with the Canadian Centre for Policy Alternatives.

Insolvencies in the transportation section are seeing a sharp increase likely a reflection of higher fuel prices in particular," Macdonald said.

More to come.

With files from Canadian Press.

Correction - Feb. 7, 2023: This file was updated to correct attribution to the Office of the Superintendent of Bankruptcy.

Ghada Alsharif is a Toronto-based business reporter for the Star. Reach Ghada via email: galsharif@torstar.ca