Canadian Bankruptcy & Insolvencies Are On the Rise
February 2024
THE TREND IS NOT YOUR FRIEND: CORPORATE BANKRUPTCIES ARE UP OVER 40%
While there were several positive economic developments in 2023, Canadian consumer and corporate insolvencies were unfortunately not one of them. Overall, insolvencies increased 24% YoY, largely driven by an increase in consumer bankruptcy proposals (+28% YoY), consumer bankruptcies (+6% YoY) and corporate bankruptcies (+41% YoY). Continued financial headwinds, such as persistent inflation, increasing debt service costs and the winding down of government aid are contributing factors, and items that we will monitor closely through 2024.
KEY TAKEAWAYS THIS MONTH:
Insolvencies Are On The Rise: Canadian insolvencies increased by 24% YoY in 2023 driven by Corporate Bankruptcies which were up 41%. Borrowers should look for the help of insolvency professionals, debt experts, and private credit funds to assist; call us for referrals to all three.
Corporate Insolvencies Are Industry Agnostic: While industries such as Hospitality were most hard-hit by COVID, all industries saw an increase in insolvencies in 2023.
Early Signals Indicate The Trend Will Persist In 2024: While 2023 insolvencies showed a material increase, we believe the trend will persist into 2024. Both consumer and corporate bankruptcy proposals, the leading indicator for bankruptcies, have increased 28% YoY and 42% YoY, respectively.
Canadian Insolvencies, 2019 - 2023
CANADIAN CONSUMER INSOLVENCY INSIGHTS
Canadian Consumer Insolvencies
Consumer insolvencies have increased 23% YoY but remain below pre-COVID levels.
Consumers Struggling, Need To Be Monitored: Consumer insolvencies have increased 23% YoY, mostly attributable to a 7% YoY increase in bankruptcies and 28% YoY increase in bankruptcy proposals. This trend will have to be closely monitored as proposals are often a leading indicator of future bankruptcies. Interesting, the current level of consumer insolvencies currently remains 10% below pre-COVID levels meaning more pain is likely.
Canadian Consumer Credit - Consumer Non-Mortgage Credit Rising; Up 2% YoY
Non-mortgage consumer credit is reaching all time highs.
Canadian Consumer Credit - Consumer Mortgage Credit Rising; Up 3% YoY (Graph)
The pace of growth in mortgage debt is slowing.
Is Non-Mortgage/Mortgage Debt The Problem?: Both household non-mortgage credit usage and household mortgage credit have increased by 2% YoY and 3% YoY, respectfully. Credit card balances, arguably a household’s most liquid credit source, have risen substantially, up to $4,119 per capita compared to $3,727 in 2022 and surpassing pre-COVID levels. Additionally, the percentage of credit card holders making the minimum monthly payment has increased by 3.4% YoY, while the percentage of individuals paying off their balance in full has declined by 1.5%.
Canadian Corporate Insolvencies, 2019 - 2023
Corporate bankruptcies have increased by 41% YoY. Corporate bankruptcy proposals have increased by 42% YoY.
Corporations Struggle Across All Industries: There wasn’t much of a safe haven for Canadian businesses during 2023 as they tackled a tough macroeconomic environment. Overall, corporate bankruptcies increased 41% YoY. Corporate bankruptcy proposals also saw a material 42% YoY increase, which is a likely indicator that elevated corporate bankruptcies will persist into 2024. There was not a single industry in Canada that did not experience an increase in insolvencies.
Industry Highlights: Corporate Insolvencies, 2019 - 2023
Every industry experienced an increase in insolvencies, not just the COVID sensitive industries.
No Canadian Industry Was Safe: While there was not a single Canadian industry that saw a decline in insolvencies in 2023, some industries were more impacted. Namely, Hospitality (44% YoY increase), Construction (31% YoY increase) and Manufacturing (55% YoY increase) experienced higher rates of insolvency compared to their historical average.
BEYOND THE DIGEST: WHAT IS DWA LOOKING AT THIS MONTH?
Canadian Energy M&A Strong In Q4 2023: There were 27 M&A deals announced in the Canadian oil & gas industry in Q4 2023, representing $4.2 billion of deal value
Nvidia Continues To Skyrocket: We are amazed by Nvidia’s continued progression – their most recent earnings indicated they had a 205% YoY increase in revenue. Keep it up!
What’s Going On With CEBA?: An estimated $37 billion of CEBA loans remain outstanding with 75% of business owners indicating they will be able to repay the loan at the new deadline.
Sources: Banks, Statistics Canada, Equifax, Diamond Willow Advisory.
