Reference to the CFA’s Advocacy Update from August 11, 2022

Business and consumer insolvencies are marching higher, as climbing interest rates and crushing inflation fuel economic uncertainty, according to an insolvency industry group, the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).

In the second quarter of 2022, business insolvencies climbed 30.9 per cent compared to the same time last year, and they’re up 26.3 per cent from the first six months of 2022.

Consumers are also under pressure. CAIRP’s data show there were 25,266 insolvencies in Q2, up 10.5 per cent compared to the same time last year, and up 9.2 per cent from the previous quarter, in what is the “highest volume” in two years. They are up 32 per cent compared to 2020.

The rising number of insolvencies are directly related to higher inflation and interest rates, CAIRP said.

Things are expected to get worse. During the pandemic, consumer insolvencies fell 40 per cent amid ample government supports that kept Canadians’ finances afloat, CAIRP said. But now that such financial aid has been removed, insolvencies are starting to bounce back, though they still remain below 2019 levels.

Plus, interest rates are rising at a fast clip, a shock for some people’s finances. The Bank of Canada has pledged to keep hiking rates to wrestle soaring inflation back to its two per cent target. Inflation hit 8.1 per cent in June from a year earlier, a level not seen in decades. That’s left Canadian consumers wrestling with growing debt costs from rising interest rates, while trying to manage higher prices of essentials at the same time.

According to a survey released yesterday from Maru Public Opinion and Yahoo Canada, 60 per cent of Canadians have cut their expenses in the face of rising inflation. Of those, 68 per cent have trimmed spending on restaurants, while 61 per cent have cut back at the grocery store.

Inflation and rising rates are also dinging business balance sheets, and are especially painful for those organizations who have not fully recovered from pandemic losses. Business insolvencies are likely to grow in the months ahead, CAIRP said, with some sectors getting impacted more than others. Those include construction, transportation and warehousing.

“Looking ahead, businesses in industries most affected by fluctuations in cost and supply chain pressures and changes in business and consumer confidence are the most vulnerable,” Jean-Daniel Breton, chair of CAIRP said in the release.

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