Business insolvencies in Canada are hitting an all time high, according to the federal Office of the Superintendent of Bankruptcy.
Data from the Office of the Superintendent of Bankruptcy reveals within the last quarter, which ended on June 30, a total of 1,090 commercial bankruptcies were filed, making it the highest on record since 2014.
The latest data suggests that bankruptcies are linked to high inflation and raised interest rates. The total is up 37% from this time last year, which is a drastic change in the trend considering for the last decade, insolvencies have been going down, hitting their lowest point in 2021.
During the pandemic, the federal government offered support programs to businesses and interest rates were quite low, however things began to turn around in 2022 and 2023.
Hotels and restaurants were among the businesses hit the hardest as a result of lockdowns. Construction was another leading industry when it comes to insolvencies, making up about 15% of the total and that number continues to grow.
The rising cost of materials is a burden most often carried by smaller construction companies, according to Dave Wilkes, president of the Building Industry and Land Development Association. While the cost to build a residential building has gone up by 65% since 2020, demand from buyers is going down due to spiking interest rates. These factors are adding even more pressure on the industry to meet the government’s housing targets over the next ten years.
“This period of softness is only going to put us further behind on achieving those goals,” said Wilkes.
A survey conducted by Patrick Gill, who works as the senior director of operations and partnerships at the Canadian Chamber of Commerce’s Business Data Lab, contacted 15,401 businesses between April and May to understand the cause of this increase.
The survey revealed that 56% of businesses cited inflation as the biggest bankruptcy culprit of the second quarter. Input costs, high interest rates and debt were also to blame. “We’re catching up after COVID,” said Gill.
