Corporate insolvency claims see sharpest rise in 35 years – MLT Aikins

The number of corporate insolvency applications rose sharply in the third quarter of 2022 as the country grappled with relentless interest rate hikes amid the highest inflation seen in decades.

According to the latest data from the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), business bankruptcy filings rose by 48.5% year-over-year in the third quarter of 2022 – the sharpest increase in 35 years, with a total of 796 proceedings filed under Law on Bankruptcy and Insolvency (BIA).

The construction, accommodation and catering sectors had the highest insolvency rates, while the mining, energy and financial services sectors saw a decline in insolvency claims.

The sharp jump in bankruptcy filings in the third quarter continued the trend seen in the first half of 2022, when bankruptcy filings rose 26.3% from 2021 levels.

“We expect additional pressure on borrowers and a consequent increase in corporate bankruptcies as higher borrowing and input costs affect businesses still struggling to recover from the pandemic,” CAIRP President Jean-Daniel Breton said in a statement.

The economy cools as exchange rates rise

In December, the Bank of Canada raised the overnight interest rate by 50 basis points, bringing the rate to 4.25% in an effort to quell persistent inflation.

The central bank noted that Canada’s GDP growth was stronger than expected in the third quarter and the unemployment rate remained low. However, as consumer spending and the housing market continue to cool, the bank predicted that growth would “essentially grind to a halt” during the first half of 2023.

“Looking ahead, the Governing Council will consider whether the interest rate should rise further to bring supply and demand back into balance and inflation back on target,” the central bank said in a statement.

Taking a proactive approach

An increase in insolvency filings in the first half of 2022 was not necessarily a bad thing, CAIRP noted. In the second quarter, 21.7% of corporate insolvency applications were proposals – indicating that businesses were developing payment plans to avoid bankruptcy.

“It’s important to note that the increase in bankruptcies is not just bad news,” Breton said. “This means companies are taking proactive measures to put themselves on a more stable financial footing.”

The attorneys in the MLT Aikins Bankruptcy and Restructuring Group have extensive experience representing clients in a wide range of bankruptcy proceedings. A variety of tools are available to you – including BIA suggestions and in-box options Law on Settlement of Company Creditors – this can give you time to restructure and negotiate with creditors if you are in financial difficulties. Contact us to find out more.

Note: This article is of a general nature only and does not exhaust all possible legal rights or remedies. Furthermore, laws may change over time and should only be interpreted in the context of particular circumstances so these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in each specific situation.

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