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.”
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
