Business insolvency filings in Canada hit their largest third-quarter volume in 15 years, with 1,312 companies teetering on the brink of going under.

On a yearly basis, such filings also rose in every province but New Brunswick and Newfoundland and Labrador from Oct. 31, 2023, to Oct. 31, 2024. Ontario led the pack with a two-thirds increase, or 588 more insolvencies than a year earlier, while Quebec bankruptcies rose 40.4 per cent, an increase of 847.

The pain will continue, at least into early 2025, according to Corey Geenen, a licensed insolvency trustee and partner at Ernst and Young Inc.

“We’ve definitely seen an uptick, especially in recent months, in terms of insolvency activity,” he said.

Geenen said a number of factors are behind the increase, including a sluggish economy and decreasing demand across industries. Until very recently, companies and consumers were also contending with rising interest rates and inflation.

“People have been tightening their budgets, and inflation just kind of permeated throughout the rest of the economy,” he said.

The pandemic had a historically low level of insolvency filings — which include bankruptcy and restructuring procedures — because government supports kicked in, but things started to normalize in 2023 and have continued through 2024.

“Insolvency activity was slower than expected over the past few years, especially over the COVID-19 period. Yes, there were a few large restructurings, mainly in the retail sector, but other than that it was quite quiet,” Geenen said, adding that some businesses that received a lot of funding during the pandemic were probably in business longer than they would have been otherwise. “I would say that what we’re seeing is a bit of catchup, almost.”

The federal government early in 2024 said a quarter of the small businesses that had received money under the Canadian Emergency Business Account program had not met the repayment deadline.

Insolvencies have permeated a variety of sectors, from retail and real estate to service and hospitality, and, to a lesser extent, life sciences, Geenen said.

The hardest-hit sectors in the third quarter compared to a year ago were construction (with insolvency filings up 37 per cent), accommodation and food services (up 32 per cent), and transportation and warehousing (up 28 per cent), according to the Canadian Association of Insolvency and Restructuring Professionals.

The construction sector had for the largest share of insolvencies in the third quarter at 15.4 per cent.

One Toronto-based licensed insolvency trustee, whose firm specializes in restructurings, said the real estate industry was hit by a perfect storm of conditions, but insolvencies were driven mostly by high interest rates throughout much of the year and increasing construction costs.

“There’s probably 10 times the number of real estate projects that went into insolvency in 2024 compared to 2023,” said the trustee, who asked to remain anonymous because he’s not authorized to speak for his company. “People didn’t want to borrow money to buy homes because interest rates have gone up. Developers were also being charged more on their money.”

He said the Bank of Canada’s decision to cut rates by 50 basis points on Dec. 11, bringing the policy rate to 3.25 per cent, will help the industry, but the effect won’t be felt for months.

“All these interest rate changes take about six to nine quarters to catch up,” he said. “You’re going to see some struggles for a bit. Right now, there’s no appetite for new homes.”

Multinational companies based in the United States are also factoring into the higher-than-normal insolvency rate. More U.S. companies with operations in Canada are filing for bankruptcy in this country rather than south of the border because it’s a far less expensive process.

“The U.S. companies are taking advantage of the Canadian insolvency regime,” the trustee said. “It’s cents on the dollar to file here than it is in the U.S. Lawyers are being creative in filing in Canada.”

The oilpatch also took a hit.

A protracted downturn in natural gas prices battered the balance sheets of some oil and gas producers in Western Canada, driving insolvencies in the sector to their highest level in three years.

The number of producer bankruptcies, receiverships, creditor proposals and filings under the Companies’ Creditors Arrangement Act (CCAA) was greater in 2024 than in the previous two years combined, according to an analysis by the Financial Post of court filings and data compiled by Insolvency Insider Canada.

Geenen said we can expect the current insolvency trend to continue into the early part of the new year at the very least.

“My expectation is that the beginning of 2025 will continue to be fairly busy,” he said. “Beyond that, I think it’s difficult to say.”

The threat of tariffs following the U.S. election has shaken business confidence, he said, and there’s also the current instability in Ottawa.

“If Canada follows in the U.S.’s footsteps with the recent election, there’s a very high level of uncertainty that will drive the insolvency statistics throughout Canada … in early 2025,” Geenen said.

• Email: arankin@postmedia.com

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