Bankruptcies are increasing in Canada as the government backs the end and companies struggle with a difficult recovery after the pandemic characterized by rising costs, supply chain issues and labor shortages.
The number of companies that filed for bankruptcy in the first quarter of the year jumped 33.8 percent compared to 2021, according to statistics from the Bankruptcy Supervisor’s Office of Canada. A total of 807 companies filed for bankruptcy this quarter, an increase of 10.1 percent from the previous three months.
While the number of companies filing for bankruptcy is still just below pre-pandemic levels — 972 companies filed for bankruptcy in the first quarter of 2019 — the rise marks a return to a more normal market, says the Conference Board of Canada director of economic forecasts. Ted Mallett. He says the financial support provided by the government through the COVID-19 pandemic has helped delay the escalation of bankruptcies. The last federal COVID-19 support programs for businesses ended this month.
“Had there been no government support, we would have seen many more bankruptcies during the pandemic,” he said.
“We are now, in many ways, in a completely different economy where some companies are doing very well while others are left to pick up the pieces. Pretty much, that’s what usually happens in economies anyway. There has always been a huge momentum of companies coming in. market and get out of it.
It remains to be seen whether more companies will file for insolvency in the coming months. But Dan Kelly, president of the Canadian Federation of Independent Business (CFIB), says he expects the number of companies calling to pull out will continue to increase, as many companies face a slower-than-expected return to normalcy, along with rising costs and outstanding debt.
“We said there was going to be a day to appreciate the damage the pandemic has done to small businesses, and it looks like this has begun,” Kelly said in an interview.
“There are many business owners who say, ‘I don’t see a way back to profitability’ and make the decision to close their doors for good.”
High levels of debt for small businesses
According to the CFIB, which has 95,000 members nationwide, 65 percent of small businesses have borrowed through the pandemic, with an average amount of up to $160,000. At the same time, the group says one in four (24 percent) of small business owners are seeing sales affected by the slow return to the office by downtown workers.
“Sales haven’t achieved back to pre-pandemic levels for many…and costs have gone through the roof over the past several months,” Kelly said.
“Inflationary pressure is there for the average Canadian, and it’s even greater for small business owners who are facing pressure on every line item of their budget.”
Filing for bankruptcy is often a last resort for business owners, and the data doesn’t show how many companies go into bankruptcy, Kelly notes. The CFIB is calling for Ottawa to forgive a larger portion of the Canadian Contingency Business Account (CEBA) program, which allowed businesses to take out interest-free loans of between $40,000 and $60,000.
Whether the number of bankruptcy filings exceed pre-pandemic levels will depend largely on economic factors, and how inflation and supply chain issues are managed in the future, says David Lewis, a member of the Canadian Association of Insolvency and Restructuring Professionals and a partner at BDO. months.
Lewis also says that filing for bankruptcy is not the only option available to distressed companies and advises companies to speak to professionals to understand the full list of options.
“If you are feeling stressed by your company’s day-to-day business, it is probably worth contacting a licensed insolvency trustee to see what your options are,” he said.
Elijah Sikerska is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter Tweet embed.
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