Insolvency cases have been on an upward trend for at least a year. The financial cushion built at the start of the pandemic has melted away for many Quebecers who are now struggling to make ends meet, experts observe.
After falling in 2020, bankruptcy and consumer proposal rates have been increasing for several quarters, notes André Bolduc, Chair of the Board of Directors of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).
Last May, consumer insolvency files in the country totaled 12,195, almost reaching the level of May 2019. In Quebec, they reached 3,110, a jump of 16% compared to last year.
“As we’ve recovered from the pandemic, people have started to face their financial situation again. Problems we had before the pandemic, including a high debt ratio for Canadians, are still there today,” Bolduc said in an interview.
In the early months of the health crisis in 2020, individuals were able to save significantly, thanks to lower personal expenses and a reprieve from creditors for payments.
But this advantageous period, when surpluses were available to deal with the unexpected, is now a thing of the past for many, also observes the president of Jean Fortin et Associés, insolvency trustee, Pierre Fortin.
As consumer cash flow diminished, credit card balances started to increase, I would say starting in early 2022. And today, we have credit card balances that are at record highs.
Pierre Fortin, President at Jean Fortin and Associates
According to Mr. Bolduc, about one in two households in Canada “lives paycheck to paycheck,” meaning they have no savings.
“What we’re seeing right now in our offices among clients is that savings seem to have decreased. People scraped together everything they had during the pandemic, then for inflation and interest rates,” says Sophie Desautels, licensed insolvency trustee at Raymond Chabot.
“And then we started getting into debt and we fell into a cycle. It’s harder to make monthly payments on credit cards and loans,” she adds.
Quebec, in a better position
Mr. Fortin notes that Quebec seems to be doing better compared to other places in Canada. La Belle Province currently has 20% fewer insolvencies than in 2019, while there are 17% more in Ontario and 40% more in British Columbia.
This better situation for Quebec can be explained by a more favourable context. The province has a lower consumer credit debt rate and a lower unemployment rate, says Mr. Fortin. But, according to him, the main factor is mortgage payments. They weigh less heavily on Quebecers’ budgets because of lower property values.
“We were less affected in Quebec by the increase in interest rates than in Ontario and British Columbia. So, it has a huge impact. And we see it in our files. Very few people come to see us with financial problems and who are homeowners, much fewer than in 2019,” he says.
Sophie Desautels, for her part, notes a change in profiles among her clientele. “We see a lot of people with assets and property that have a certain value, but who are also in debt for several tens of thousands of dollars,” she says.
In the vast majority of cases in Canada, insolvency files lead to settlement offers, thus avoiding bankruptcy. Last May, these agreements represented 76% of cases.
“What is important is that people consult a professional like a licensed insolvency trustee to see what their options are. The sooner people can face the music, the less stressful it is for them. There are solutions. We have a good system in Canada,” says Mr. Bolduc of CAIRP.
Companies
The rise in insolvencies is also hitting the corporate sector. In May, corporate insolvencies in Quebec decreased compared to April, falling 3.6% to 325, but were up 43.8% compared to last year.
The economic situation and loan repayments, particularly under the federal government’s Canada Emergency Business Account, have had “a strong impact on the financial situation” of companies, says Étienne Fiset, partner and licensed insolvency trustee at Raymond Chabot.
Among his customers, he notes that various sectors of activity are affected by the current context.
“There is no typical profile. We see everything, people who are in catering, construction contractors, people who had started new projects and now they are struggling a bit. We also see people in transport,” lists Mr. Fiset.
According to data from the Office of the Superintendent of Bankruptcy, Quebec accounted for approximately 60% of business insolvency files in the country in May.
Quebec companies would be more likely to pursue formal insolvency and restructuring procedures due to stricter supervision in the province, according to Mr. Bolduc.
This would therefore not be a sign of greater difficulties for Quebec companies, given that the closure rate is lower in Quebec, he emphasizes.