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Ontario Business Bankruptcy

The State of Ontario Business Bankruptcy

To say the last few years have been challenging for many Ontario business owners is an understatement. Since the onset of the pandemic, it has been a rollercoaster ride of lockdowns, closures, reopenings, and restrictions. Despite the ups, downs, and uncertainties, the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) reports a record-low in the number of business insolvencies. This might sound counterintuitive. How could there be a drop in insolvencies during an economic recession? The low number of insolvencies can be largely attributed to pandemic support from the federal government.

However, now that these supports have gone away, businesses are left to pick up the financial pieces on their own. This is all while they are also facing increasing interest rates, labour shortages, low revenue, and supply chain issues. At this point, many Ontario business owners are feeling the pressure and trying to decide if it’s time to walk away or file for business Bankruptcy.

The State of Canadian Business Insolvencies

A recent report from the CAIRP reveals the number of Canadian business insolvencies was up 36.8% in the fourth quarter of 2021. This is the largest increase in 35 years, according to the Office of the Superintendent of Bankruptcy. There were a total of 733 business insolvency proceedings filed under the Bankruptcy and Insolvency Act (BIA) in Q4 of 2021. While this sounds like a lot, these numbers are down 19.2% compared to Q4 2019, pre-covid. The 36.8% jump in the fourth quarter is significant, but it’s largely because there were so few insolvencies in 2020 and 2021 due to strong government supports.

Factors contributing to the decline in insolvencies

In addition to government support, the pandemic also brought low-interest rates, debt deferral programs, and increased savings among individuals. In March 2020, the Bank of Canada lowered its policy interest rate by 1.5% in preparation for the anticipated economic downturn helping to reduce consumer debt payments.

Debt deferral and relief programs were widely offered which helped many Canadians to make ends meet and potentially avoid insolvency. Federal government programs including the Canada Emergency Response Benefit (CERB), Canada Emergency Wage Subsidy (CEWS), and Canada Emergency Business Account (CEBA) also helped to keep Ontario businesses and households afloat.

Is it normal to see a decline in insolvencies during an economic downturn?

No, according to Stats Canada, a decline in insolvencies during an economic downturn isn’t normal. Historically, insolvency filings increase during a recession. The 2008 financial crisis and the 2014 oil crash resulted in an increase in insolvency filings under the BIA as well as an increase in the number of Companies Creditors Arrangement Act (CCAA) filings for larger companies.

The economic downturn caused by the pandemic didn’t yield the same results. But, sources like the CAIRP and 2022 Ontario Economic Report suggest the Canadian business insolvency numbers don’t provide a full view of Canadian and Ontario business bankruptcies. This is because many business owners are choosing to walk away from their business instead of filing for corporate bankruptcy or considering restructuring. Jean-Daniel Breton, Chair of CAIRP, said in a 2022 media release, “Struggling businesses may be under the mistaken notion that their only next course of action is shutting their doors. But walking away isn’t always the only or best option…there may be options to restructure or rehabilitate to make the business viable again with the right guidance from a Licensed Insolvency Trustee.”

The State of Ontario Business Bankruptcy

According to the Financial Accountability Office of Ontario, in 2020, insolvencies declined in all major cities in Ontario across most industries. The industry exceptions were educational services; information, culture, and recreation; and real estate. Both consumer and business insolvencies dropped by a record 24% marking the lowest annual level since 2000.

A recent statement from the Canadian Federation of Independent Business (CFIB) reports only 35% of Ontario’s small business firms are back to pre-pandemic revenue levels. Additionally, Ontario small businesses are carrying an average of $190,000 in COVID-19 debt with 18.5% actively considering bankruptcy.

Total insolvencies filed by Ontario businesses

Recent numbers from Statistics Canada show that in January 2021, there were 48 Bankruptcies and Consumer Proposals filed by businesses. This number went up to 82 in December 2021, and back to 45 in January 2022.

Insolvencies filed by Ontario corporations versus individual businesses

Of the 48 Bankruptcies and Consumer Proposals in January 2021, 30 were filed by corporations and 18 by individual businesses. In December 2021, 66 were filed by corporations and 16 by individual corporations. In January 2022, there were 26 corporate filings and 19 individual business filings.

What to Expect for Ontario Business Bankruptcies Moving Forward?

As government support dries up, interest rates rise, and many Ontario companies are left with a significant amount of COVID-19 debt, it’s likely the number of Bankruptcies will rise. This is especially true for small businesses. The Canadian Federation of Independent Businesses reports that only 35% of small businesses have no pandemic debt. Only 15% of small businesses report no pandemic stress, and only 40% have returned to normal sales levels. Some businesses are still reeling from the impact of the pandemic, and many may not recover.

Who Can I Talk to About My Small Business Bankruptcy?

If you’re an Ontario business owner and you’re contemplating if you should walk away from your business or file for Bankruptcy, it’s time to speak to a Licensed Insolvency Trustee (LIT). An LIT can help you determine what course of action makes the most sense for your business. Bankruptcy is not necessarily your only option.

For instance, a corporation filing under the Bankruptcy and Insolvency Act (BIA) can potentially file a proposal to restructure the company. This is providing a deal is reached with the corporation’s creditors. Larger companies can also consider corporate restructuring under the Companies Creditors Arrangement Act (CCAA). The CCAA is typically restricted to larger corporations that owe creditors more than $5 million.

If you are struggling to keep your business afloat, contact one of our trusted LITs at Adamson and Associates Inc. Call us at 519-310 JOHN or fill out our contact form online to schedule a free, no-obligation consultation.

John Adamson, Licensed Insolvency Trustee Ontario

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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