Business insolvencies jumped by more than 41 per cent in 2023,according to data released Friday by Canada’s top financial regulator.
The report from the Office of the Superintendent of Bankruptcy showed that the total number of insolvencies — meaning those filed by both businesses and consumers — was up by 23.6 per cent last year.
The high insolvency rates for businesses are “telling a story that we’ve been a little concerned about, and that is essentially that we’re seeing a very tough economic climate for a lot of businesses” amid low economic activity, said Pedro Antunes, chief economist at the Conference Board of Canada.
“Profits have plummeted and we’ve seen the stresses of CEBA loan repayments due, and perhaps other stresses coming into play,” he said, adding there might be more job losses in the coming months.
He said that if things start to unravel, there’s still room for the Bank of Canada to lower interest rates, which would help businesses repay their loans and reduce the need for job cuts.
“But we’re at that crux. We’re at that moment where everybody’s kind of holding their breath to see what’s going to come of this,” he noted.
Richard Goldhar, a licensed insolvency trustee, says phones are ringing off the hook at his Toronto-based bankruptcy firm. (CBC)
The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) said in a statement that Friday’s numbers marked the sharpest increase in business insolvencies in 36 years of records. Analysts were expecting businesses to be hit hard in 2023, with many having fallen behind on their pandemic loan repayments.
Finance Minister Chrystia Freeland said on Jan. 23 that a quarter of small businesses that took out a Canadian emergency business account (CEBA) loan had missed the repayment-with-partial-forgiveness deadline of Jan. 18.
“Many businesses are already on a razor’s edge. The additional costs to service their debts due to higher interest rates will mean even less room to cover increasing costs of business going into 2024,” said CAIRP chair André Bolduc.
Cost of living a major factor
The insolvency numbers take bankruptcies and creditor proposals into account. The latter is when a person in debt offers a formal proposal to their creditors asking for a different arrangement to pay back the money they owe. They might pay a percentage of their original debt or negotiate the repayment deadline, or a combination of both.
Richard Goldhar, a licensed insolvency trustee who assists clients with such arrangements, says things are busy at his Toronto-based firm.
“Our staff are always talking to clients now, the phones are ringing all the time,” said Goldhar. His firm files bankruptcy or bankruptcy proposals on behalf of individuals and businesses, then helps them restructure their debts.
Last year saw a big jump in the number of business insolvencies. Now the deadline to start paying back the CEBA loan is looming. Producer Ellis Choe looks at businesses under pressure, and why more bankruptcies could lead to a credit crunch.
Consumer insolvencies alone rose by 23 per cent last year, according to Friday’s report. Goldhar said that the cost of living is the highest contributing factor to personal bankruptcy among his clients.
“Food costs, car costs, gas costs, just the daily cost of life,” he said.
Between these expenses, plus mounting credit card debts and skyrocketing payday loans (short-term loans that have expensive fees), as well as elevated interest rates for those refinancing their mortgages, Goldhar said his clients are dealing with many layers of financial stress.
Credit card debt is an especially significant factor, with total balances reaching an all-time high of $11.34 billion in the fall, a 16 per cent rise from the same period last year, according to a December report by credit bureau Equifax. (That figure doesn’t include mortgage debt.)
And while wages have been on the rise, they aren’t keeping pace with inflation, in turn forcing people to borrow money while interest rates are still high, at five per cent.
Goldhar said that wages are also playing into the uptick of business insolvencies among his clients, as employees ask for better salaries and businesses struggle to balance those increases.
Canadian bank notes are seen in Ottawa on Sept. 6, 2017. A Toronto licensed insolvency trustee says that the high cost of living, mounting credit card debts, skyrocketing payday loans and elevated interest rates are contributing to financial stress among his clients. (Adrian Wyld/The Canadian Press)
Numbers back up after pandemic lows
Consumer bankruptcies plunged to a record low at the start of the pandemic, with only 6,700 people filing for insolvency or filing a creditor proposal in April 2020, down 43 per cent from a year before. The government had introduced financial supports, while mortgage payments were deferred.
Anna Lund, an associate professor in the faculty of law at the University of Alberta, said that the insolvency numbers reported on Friday are more or less in line with 2019 levels, given the drop-off that began in 2020.
“So we’re coming back up to where we were before the pandemic.”
The low bankruptcy levels that began during the pandemic have “stayed that way for households up until very recently,” said Antunes. Now, those numbers are starting to come up, especially for consumer-filed creditor proposals, which were up by 28.3 per cent last year.
“That means that, essentially, households have gotten themselves into too much trouble, and they’re trying to bargain their way out of a tough situation,” said Antunes.
Lund offered a different explanation for the rise in proposals.
“One of the things that people worry about with bankruptcy is that if you make it too easy for people to get rid of their debts, they are going to file for bankruptcy when they could pay back some of their taxes.”
As a result, Lund said, “the federal government has expressed sort of a preference for consumer proposals and has put a number of things into the Bankruptcy and Insolvency Act that encourage people towards consumer proposals.”
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
