In a report from the Canadian Office of the Superintendent of Bankruptcy (OSB), the latest data reveals a sharp increase in the number of corporate bankruptcies in the first quarter of this year. Weak consumer sentiment, coupled with escalating operating costs, have led to a significant surge in the number of businesses seeking creditor protection.
Experts caution that the vast majority of business closures do not involve formal bankruptcy filings, but rather the businesses simply shutting down, indicating that the actual situation may be even worse than reported.
Statistics indicate a significant increase in corporate bankruptcies nationwide in recent months. In the first quarter of this year, the OSB received a total of 2,003 bankruptcy applications, marking a 31.7% increase from the previous quarter and a staggering 87.2% increase compared to the same period last year. Over the past 12 months leading up to the end of the first quarter, the OSB has received 5,743 bankruptcy applications, representing a 57% increase year-over-year.
According to the BetterDwelling website, the surge in corporate bankruptcies can be attributed to various factors, with the primary reason being low consumer confidence. Shelly Kaushik, an economist at Full Silver Economics, explained that the industries with the highest number of bankruptcy applications for the quarter were accommodation and food services at 15.5%, followed by construction at 13.6%, and retail at 11.1%. These three sectors reflect restrained consumer spending, which naturally impacts industries like construction already burdened by high interest rates.
Bankruptcy experts warn that despite a growing population which theoretically should create more demand, businesses are facing widespread challenges. André Bolduc, President of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), issued a warning indicating that there are increasingly signs indicating tough times ahead for businesses.
Bolduc noted that many businesses not only have to navigate high input costs, soaring labor costs, declining consumer spending, and rising debt costs, but also bear additional burdens from the pandemic. As government pandemic relief measures come to an end and the grace periods for interest-free repayments expire, businesses are facing additional operational costs that make it increasingly difficult to stay afloat.
Experts caution that many businesses are in dire straits, opting to close down rather than pursue debt restructuring or turnaround strategies, suggesting that the actual situation may be more dire than what the data reflects.