Bankruptcy: A tough start to the year for businesses

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

Louis Gagnon, vice-president of debt solutions at BDO Solutions, explains, “Businesses are really struggling to meet the needs and find solutions.”

In the past year, business bankruptcies in Quebec have increased by nearly 50%.

“Rental costs are high, labor costs are high, basic materials are high. With inflation, people are cutting back on what they don't need,” explained the bankruptcy trustee.

At the BDO Debt Solutions office in Rimouski, calls from business people at the end of their rope are higher than ever at the start of the year.

Record number of files in January

The record was set in January 2024, according to the Office of the Superintendent of Bankruptcy. A 129% increase was observed in the number of bankruptcy files filed in Canada compared to January 2023.

“The Superintendent of Insolvencies has been keeping statistics for 36 years and in January 2024, this is the biggest increase ever recorded in terms of volume of commercial insolvencies,” the trustee underlined.

The straw that broke the camel's back for many entrepreneurs was the required COVID loan repayment in January.

“Companies try to get a loan, get a loan, refinance, but often financial institutions refuse because the company is not strong enough or requires a personal guarantee from the person, which is heavy for the entrepreneur. Already breathless,” Ms. Gagnon added.

Some insist on doing it

Bankruptcy cases have become rarer during the pandemic, especially due to financial support from the government, while a catch-up process is also underway.

“There is almost no bankruptcy in 2021-2022, so yes, there is a lot to do. So we don't want to be alarmists, […] But it is still the biggest increase in the last 36 years.

Faced with this rising number of bankruptcies, the Canadian Federation of Independent Business (CFIB) felt the government should take action to stop the bleeding.

“If we look at payroll taxes in Quebec, it's 30% higher here than in the rest of Canada. We are the only province that does not offer even the smallest businesses in the construction and services sectors access to a reduced tax rate. Maybe it’s time for the Quebec government to do something for our small businesses,” said Francois Vincent, vice-president of the Canadian Federation of Independent Business.

Currently, many companies cease operations without formally declaring bankruptcy. So they are not found in the statistics.

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