Bankruptcies in Canadian businesses surge, near pre-pandemic highs

Business failures jumped 34% year-over-year as government aid cut off

Canadian business bankruptcies are beginning to mirror pre-pandemic levels, after the first quarter of 2022 reports a 34 per cent increase in business failures compared to the same quarter last year.

During the first two years of the coronavirus outbreak, company bankruptcies remained significantly lower than normal, thanks to government subsidy programs and loans for struggling businesses. Now that those aid programs have concluded and the remaining money is drying up, businesses must figure out if it is worth staying open. 

Canadian Federation of Independent Business president Dan Kelly explained that this surge does not come as a total surprise, as it was only a matter of time for the pandemic lows of bankruptcy filings to climb back up. He anticipates that the number of businesses bankruptcies are likely to rise and worsen as a result of inflation and the withdrawal of pandemic-related government subsidy programs. 

A look at the numbers: In the first quarter of 2022, there were 807 business insolvencies, up from 733 in the previous quarter and 603 in Q1 of 2021. In comparison to the pre-pandemic numbers, the first quarter of 2019 had 972 insolvencies, up 17 percent from the current numbers. 

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There are many measurable factors that will affect the future, such as supply chain problems, inflation, and interest rates; along with immeasurable factors like consumer and business confidence, says Jean-Daniel Breton, chair of CAIRP. 

Employment industries that had the largest yearly increase in bankruptcy filings were construction, transportation, and warehousing – which are most likely linked to increasing gas prices. 

The Canadian economy remains steady despite the current situation and its challenges. The latest uptick in bankruptcies could just reflect a return to the pre-pandemic normal.

Is an employee owed severance when a company declares bankruptcy?

An employer is not legally obligated to provide their employees with severance if a company has declared bankruptcy. Employees are considered unsecured creditors, and are at the “back of the line” for compensation after secured creditors, like banks and other lenders. 

Does an employee get severance when a company goes out of business?

If a company goes out of business, but does not declare bankruptcy or receivership – and still has assets and money – its employees are owed severance.

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Employee rights when company closes down

Many small to medium businesses do not bother filing for bankruptcy, and often simply close their doors, or sell the business. Non-union employees who are let go due to a business closure might be entitled to more severance pay, as it is potentially more difficult to find comparable future employment.

Do I need to speak to an employment lawyer?

If you are an employee who has been let go due to a business closure, you should look into your employment rights and entitlements. Contact an employment lawyer at Samfiru Tumarkin LLP as soon as possible to preserve your legal entitlements. You need to ensure that your rights are protected.

Talk to Canada’s most positively reviewed employment law firm to get the advice you need, the compensation you deserve.