Mark Roberts

Head of Client Success North America

Navigating the Shifting Canadian Insolvency Landscape: A Call to Action

In the wake of economic turbulence, Canada finds itself at a crossroads, grappling with a challenge that demands attention. The topic at hand is the surge in interest rates, a phenomenon with far-reaching consequences that stretch beyond the confines of financial markets. As the interest rate tide rises, it threatens to inundate both businesses and consumers, pushing many to the brink of insolvency.

The current financial landscape presents insolvency professionals with many challenges. As we delve into the intricacies of this evolving terrain, we find ourselves at a crucial juncture where a proactive and innovative approach is not just recommended, but essential to help those affected.

As insolvency looms large, we must confront the question: How do we tackle this issue head-on and prevent it from further deterioration? The solutions may be complex, but they are crucial to ensuring long-term stability for both consumers and businesses.

Rising Interest Rates and Corporate Insolvency Pressure

As of July 2023, high interest rates have become a reality, exerting increased stress on businesses with insolvencies surging by a staggering 49%, with industries such as food services, construction, and accommodation having experienced some of the most substantial increases in insolvency rates.

Economists attribute this trend to the end of federal subsidies and low interest rates, which had previously acted as stabilizers, particularly during the pandemic. But both of those factors have now ended and high inflation and interest rates are now biting into businesses’ bottom lines. Now, they are grappling with higher costs and weakened consumer demand, underscoring the urgent need for innovative solutions.

Consumer Insolvency is on the Rise

The plight of Canadian consumers is equally concerning. In the April to June period of this year, 31,224 consumer insolvencies were recorded, reflecting a 23% increase compared to the previous year, according to the OSB. 

In a survey conducted by Ipsos, over half of Canadians interviewed disclosed they were just $200 or less away from being unable to meet their financial obligations, a 6% increase from the previous quarter. A staggering 35% of respondents acknowledged that their income was insufficient to cover their bills and debt payments, reaching the highest proportion since the index’s inception five years ago. This increase stems from rising interest rates driving up borrowing costs while inflation pushed up the cost-of-living and stretched household budgets, with many now struggling to manage the impact of higher interest rates, inflation, and the continued effects of the pandemic.

Furthermore, the specter of rising interest rates looms large, with nearly 70% of respondents feeling their impact. The implications of a further increase in the Bank of Canada’s interest rates would drive more consumers to insolvency, with three in five Canadians anticipating financial hardship if this happens. 

Insolvency Professionals Need to Act

Considering this evolving landscape, insolvency professionals are faced with new challenges, therefore, it is imperative for professionals in this sector to embrace innovative solutions that streamline processes and enhance efficiency.

To address these challenges, insolvency professionals should seek comprehensive end-to-end insolvency case management software that promotes a connected, flexible, and results-driven approach to help the increasing number of businesses and consumers filing for insolvency. This facilitates efficiency for businesses and their customers by guiding insolvency professionals to find the best route for customers through an automated process, saving time and money. Finding a solution that supports the latest legislative changes whilst significantly expediting the asset return process for creditors is essential for adaption to the regional requirements and local legislation of each area, alongside being consistent and compliant with industry standards.

This will tackle the challenges of managing customers from acquisition and onboarding, through data collection, advice and management, and recording of financial transactions whilst being secure, compliant, and reliable, making the process as efficient for both businesses and consumers.

Contributing to a Stable Financial Future

In the face of these challenges, insolvency professionals have a vital role to play in guiding businesses and consumers through these turbulent times. By adopting innovative solutions, they can provide much-needed support to both and help mitigate the impact of rising interest rates to improve financial well-being, ultimately contributing to a more stable financial future for all Canadians. 

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