Business insolvency filings drop to 35-year low, but ‘slew’ of filings feared after pandemic aid ends

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Just 160 businesses filed for insolvency in July, marking a 35-year low in new filings, according to new data from the Office for the Superintendent of Bankruptcy.

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The record low, which represented a 28.3 per cent decrease in filings from the month prior, is largely due to the federal government’s pandemic wage and rent subsidies and other business support programs such as the Canada Emergency Business Account, which have been extended until October.

Business insolvencies were down 21.2 per cent in the 12-month period that ended on July 31 compared to the year before.

But the Canadian Association of Insolvency and Restructuring Professionals said the end of those subsidies may precede a wave of new filings if businesses aren’t able to fully ramp back up before that point.

“Our fear is when the subsidies do stop, whether that’s the fourth quarter of this year or the first quarter of next year, there will be a slew of insolvencies that will have to be dealt with,” Mark Rosen, the association’s chair, said in an interview.

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More than a third of Canadian businesses accessed the $83.5-billion Canada Emergency Wage Subsidy program during the pandemic, Statistics Canada said in June.

Rosen said business creditors such as banks and landlords haven’t been as aggressive in advancing their claims during the pandemic because the federal subsidies have allowed them to receive at least some payment from businesses.

The construction and retail trade sectors experienced the largest declines in insolvency filing, while mining and oil and gas extraction and finance and insurance saw the biggest increases.

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Saskatchewan, New Brunswick and Quebec saw the largest decreases month-over-month, at 75 per cent, 50 per cent and 40 per cent, respectively. Ontario, meanwhile, saw a 4.2 per cent increase in new filings.

Rosen said the business filings are the tip of the iceberg, because they fail to capture companies that closed or plan to shutter their businesses instead of attempting to restructure. They also don’t capture small business owners that filed for insolvency as consumers.

Supporting businesses during the recovery has become a central election question.

The Liberal Party promised to extend the Canada Recovery Hiring Program, which subsidizes businesses that hire new workers during the recovery, until March 2022, and provide the tourism industry with temporary wage and rent support of up to 75 per cent of their expenses.

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The Conservatives have announced a “job surge” plan that would pay up to 50 per cent of new hires’ salaries for the six months after the CEWS ends. The party also said it would provide loans of up to $200,000 for small and medium-sized businesses in the hard-hit hospitality, retail and tourism sectors, with up to 25 per cent forgiven, introduce a 25 per cent tax credit on amounts Canadians invest in a small business over the next two years, up to $100,000, and provide a five per cent investment tax credit for any capital investments made in the next two years, with the first $25,000 refundable for small businesses.

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The NDP said in its platform it would extend the wage and rent subsidies until small businesses are able to fully reopen, and introduce a long-term hiring bonus that would pay the employer portion of employment insurance and Canada Pension Plan contributions for new or rehired staff.

The number of consumers filing for insolvency also dropped in July, said the OSB. Just over 6,600 Canadians filed that month, down 11.3 per cent from the month prior. For the 12-month period that ended July 31, the number of Canadians filing for insolvency dropped 22.6 per cent from the previous year.

CAIRT attributed these figures to continued pandemic income support programs, but said they likely mask Canadians’ financial struggles.

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