Canadian consumer and business insolvencies on track for large gains in 2019

TORONTO—Canada is on track this year to record the largest increase in consumer insolvency filings in a decade and the first increase in business insolvencies since 2001, says a national association of insolvency and restructuring professionals.

The total number of Canadian insolvencies increased 8.4% over the past 12 months to September, according to a report from the federal government’s Office of the Superintendent of Bankruptcy.

The number of consumer insolvencies—which accounted for the vast majority of filings—increased to 8.5% compared with the same period a year earlier, while business insolvencies grew by 4.1%.

“We’re very confident that 2019 as a calendar year will also be the first increase in business insolvencies that we would have experienced since 2001,” says Grant Christensen, CEO of the Canadian Association of Insolvency and Restructuring Professionals.

Both consumer and business insolvency filings are expected to increase through at least 2020, he said in an interview.

“I think what you’ll find is that consumer insolvencies will start to level off come 2021 and similarly business insolvencies may have another slight increase next year but I expect that they will level off certainly after 2020 and maybe even have a slight decline,” Christensen added.

Insolvencies have risen amid a slowing economy and the lagging effect of higher interest rates that make it more difficult for borrowers to keep up with payments.

“There is a strong correlation between interest rate changes and consumer filings but we see a two to three year lag between rate increases and a growth in the number of insolvencies,” stated Andre Bolduc, an association board member.

“Sustained increases in living costs and debt servicing costs have created an environment in which more people are struggling to stick to their repayment terms.”

Consumer insolvencies for the 12 months to September increased the most in Alberta (15.2%), Newfoundland and Labrador (14.8%), Manitoba (13.1%), Ontario (13.4%) and British Columbia (9.5%). More moderate increases were felt in Nova Scotia (6.2%), PEI (3.2%) Quebec (1.8%) and Saskatchewan (1.6%).

The mining, oil and gas extraction sector led the way on the business side, growing by 55.2%, followed by information and cultural industries at 42.1%. The finance and insurance sector was up 27.6%.

Regionally, business insolvencies in the past 12 months rose almost 71% in Newfoundland and Labrador, followed by 75% in Prince Edward Island, 23.4% in British Columbia and 9.9% in Alberta. Ontario and Quebec together accounted for 83% of total business insolvencies in Canada but each province experienced modest growth of 4.1 and 2.6% respectively.

Saskatchewan was the only province to experience a decrease as the number of business insolvencies fell 14.9%.