Canadian business insolvencies rise 19%, but that’s just the tip of the iceberg

Business insolvencies in Canada are on the rise, but the numbers may not paint a full picture of what is deemed worse.

In the latest report from the Canadian Federation of Independent Business, the total number of insolvencies increased by 19.1% in July 2022 compared to the previous year. But the organization also cited the huge percentage of businesses that would rather shut down operations than go through the bankruptcy process, obscuring the extent of widespread business closures.

“Bankruptcy is not the first thing business owners think of when they can no longer keep their doors open. For nearly half of small business owners who believe they will have to close in the near future, their first choice is simply to exit without going through the bankruptcy process,” the report states.

In June 2022, when the total number of insolvencies – both completed filings and submitted bankruptcy proposals – increased 20.1% from the previous year and 6.4% from the previous month, it was estimated that the figures “[do] not fully understand the extent of the problem.

“In a recent CFIB study, only 10% of companies considering bankruptcy or closure would most likely do so by filing for bankruptcy,” the report quotes. Some 46% would choose to permanently close the business without the bankruptcy process.

Essentially, with June 2022 registering 303 insolvencies, there are approximately 1,393 businesses that could have shut down without going through the bankruptcy process.

The rise in insolvencies is the compounded result of a number of factors, primarily the lasting effects of the pandemic and the end of several federal support programs.

According to the report, the most affected industries are accommodation and food services, construction and retail.

Also according to the report, approximately 17% of Canadian businesses are actively considering bankruptcy or ending operations in June 2022, virtually unchanged from 14% in January 2022 and 16% in January 2021.

Some 54% are still generating income below pre-pandemic levels, while 62% still have unpaid pandemic debt.

The organization makes recommendations to combat the rising rate of business insolvency, such as increasing the repayable portion of government loans, extending repayment terms, granting tax breaks and eliminating credit card fees for small businesses.

“Governments need to decide whether to make the problem worse by raising taxes or take immediate action to prevent many businesses from disappearing for good,” CEO Dan Kelly said.

Information for this briefing was found via the Canadian Federation of Independent Business and the Trail Times. The author has no security or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author holds no license.