For the first time in two decades, the failure rate for Canadian businesses has gone up over a twelve month period.
Insolvencies are up 4.1 per cent compared to the same period in 2018, according to new data released by the Office of the Superintendent of Bankruptcy (OSB).
“The figures are evidence of a difficult period for some Canadian businesses,” said David Lewis, a board member of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).
“After nearly two decades of business insolvencies consistently on the decline year-over-year, we’re seeing an upward trend that will likely extend into at least next year.”
Predictably, the energy sector led the way with a 40 per cent spike in insolvencies, as did the information and cultural industries. There was also a jump in finance and insurance (27.6 per cent) and professional, scientific, technical services (20.6 per cent), as well as real estate, rental and leasing (14.7 per cent).
“The data shows a broad spectrum of businesses across the country that are challenged by the current economic climate. It is not simply the businesses in energy-producing regions that are struggling,” said Lewis.
Newfoundland and Labrador was hit the hardest with a more than a 70 per cent spike in failed businesses. British Columbia was second-worst (23.4 per cent), followed by Alberta (9.9 per cent), Ontario (4.1 per cent) and Quebec (2.6 per cent). Saskatchewan was the only province unscathed.
“Uncertainties across the global economy have been a contributing factor to the increase, as are domestic struggles with increasing interest rates and high household debt contributing to a slowdown in spending. For many companies, an insolvency filing is an effective way to deal with stalled growth and unpayable debt,” said Lewis.
“We may start to see Canada’s unemployment rate creep up within the coming year if economic momentum continues to wane. Should that happen as expected, it could accelerate the already rising number of consumer insolvencies in the country.”
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.