The number of bankruptcies filed by Canadian companies is growing. According to the Canadian Association of Insolvency and Restructuring Experts (CAIRP), there were 807 bankruptcies and corporate proposals in the first quarter of 2022. This is compared to 603 insolvencies filed at the same time last year.
It represents a year-on-year increase of 34 percent, the highest increase in more than 30 years. Dan Kelly is the president of the Canadian Federation of Independent Business (CFIB), the largest non-profit organization in the country dedicated to supporting small businesses. He says the sharp rise could point to a growing wave of corporate defaults in Canada in the coming months and years.
“Only about a third of trade losses during the pandemic were covered by government subsidies [and] the average small business is taking on $ 160,000, ”Kelly said on Wednesday of CTV Your Morning. “So even if their sales return to normal, they now have to pay higher interest rates on the debt they took on during the pandemic, and for many, it’s the straw that breaks the camel’s back.”
The number of business bankruptcies filed during the pandemic remained below normal due to government subsidies and loans. With these subsidies no longer in place, Kelly said it led to an increase in numbers. The sectors with the largest year-on-year increase in bankruptcies include construction, transport and storage.
“Now that most pandemic constraints, such as locks and capacity constraints, are behind us … these businesses are looking at their books and saying, ‘Yeah, I have tons of debt.’
As a result of the COVID-19 pandemic, Kelly said it was possible that up to one in six small businesses, or 180,000 businesses, would permanently close its doors across Canada and be unable to repay its debt.
“If that happens, think about the employment it would remove from the system and the impact it would have on the food chain, because businesses go bankrupt and do not pay their suppliers, nor do banks pay for any debt they have taken on. “Kelly said.” “It has huge economic implications.”
In addition, rising interest rates by the Bank of Canada, as well as rising inflation levels, could make businesses insolvent even faster, CAIRP said.
To help slow the pace of Canadian corporate bankruptcies, Kelly said part of the solution may be greater loan forgiveness. Nearly 900,000 businesses have been approved for Canada Emergency Business Account (CEBA) loans with a loan waiver of up to 33 percent. Increasing forgiveness would give businesses the help they need to stay afloat, Kelly said.
“If it increases … for some of the businesses that have been hardest hit, we believe more small businesses will cross the COVID finish line, and that’s really what the economy needs,” he said.
Watch the full CTV video Your Morning at the top of this article to learn more about what leads some Canadian businesses to go bankrupt.
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