Bankruptcies: A very difficult start to the year for companies

Many business leaders have to make difficult decisions due to their unstable financial situation. The number of bankruptcies rose sharply last year in Quebec, and this sad trend will continue in 2024.

“Entrepreneurs are having a really hard time making ends meet and finding solutions,” explained Louise Gagnon, vice president of debt solutions at BDO Solutions.

Last year, corporate bankruptcies increased by almost 50% in Quebec.

“Rent costs more, labor costs more, and basic items cost more. With inflation, people are cutting back on what is not essential,” the insolvency trustee explained.

At BDO Debt Solutions' office in Rimouski, calls from entrepreneurs at the end of their rope are more numerous than ever at the beginning of the year.

Record number of filings in January

According to the Office of the Superintendent of Bankruptcy, a record high was set in January 2024. A 129% increase was observed in the number of insolvency filings filed in Canada compared to January 2023.

“The Comptroller of Bankruptcy has been keeping statistics for 36 years, and in January 2024, this was the largest increase ever recorded in terms of the volume of business insolvencies,” the trustee emphasized.

The final straw for many entrepreneurs was the Covid loan repayment, required in January.

Ms. Gagnon added: “Companies try to refinance to get a loan, but often financial institutions refuse because the company is not strong enough or requires a personal guarantee from the individual, which is heavy for the businessman. It is really stressful.”

Some catching up to do

Since insolvencies have become very rare during the pandemic, in particular due to financial support from the government, there is also a catch-up process underway.

“There were almost no bankruptcies in 2021-2022, so yes, there is a lot of work to do. So we don't want to be alarmist; […] But it is still the largest increase in the past 36 years.

In the face of this increasing number of bankruptcies, the Canadian Federation of Independent Business (CFIB) believes that the government must act to stop the bleeding.

“When we look at payroll taxes in Quebec, they are 30% higher here than in the rest of Canada. We are the only province that does not even provide access to the reduced tax rate for the smallest companies in the construction and service sectors. We are proud to be able to provide the best value for money,” said François Vincent, vice-president of the Canadian Federation of Independent Business. “It may be time for the Quebec government to do something for our small businesses.”

Currently, many companies go out of business without officially declaring bankruptcy. Therefore, it is not found in statistics.

According to the experts interviewed, the alarming data recorded in recent months are only the tip of the iceberg.