January Sees Surge in Business Insolvencies, Mainly Bankruptcies Analysis

07 Mar, 2024

January Sees Surge in Business Insolvencies, Mainly Bankruptcies Analysis

Description: The mid-January deadline for businesses to qualify for partial forgiveness of pandemic loans likely played a major role in driving up business insolvencies that month, said the Canadian Federation of Independent Business. Businesses continue to face inflation, labor shortages, higher interest rates, and weakened consumer spending, making the deadline critical. The Office of the Superintendent of Bankruptcy reported 759 business insolvencies in January, up 42.4% from December and 129.3% from January 2023, surpassing pre-pandemic levels. The $60,000 Canada Emergency Business Account loans offered partial forgiveness if repaid by Jan. 18; otherwise, the debt became a three-year loan with five percent annual interest. Lobby groups, including the CFIB, called for deadline extensions, but many businesses missed it, adding to their debt woes.

The spike in insolvencies is just the tip of the iceberg, says CFIB’s Simon Gaudreault, noting many small businesses close without filing. Accommodation, food services, retail, and construction saw the biggest increases. Business bankruptcies rose sharply year-over-year compared to proposals. Consumer insolvencies also increased, albeit less sharply. Both business and consumer insolvencies have been rising, up 41.4% in 2023 compared to 2022. Companies struggle with pandemic debt and higher interest rates, while slower consumer spending adds to the burden.