May 2008, vol. 10, no. 1 - Business Insolvencies

In the fourth quarter of 2007, there were 1818 business insolvencies (Table 2), which include bankruptcies^{Footnote 1} and proposals.^{Footnote 2} These insolvencies had a total value of $779 million, a 4.6-percent increase over the previous quarter. Bankruptcies grew by 4.9 percent, while proposals increased by 3.3 percent over the same period. On an annual basis, however, the number of bankruptcies declined by 7.9 percent, while the number of proposals fell by 2.2 percent, for a total decline in insolvencies of 7.0 percent year-over-year.

Table 2: Total Insolvencies, Bankruptcies and Proposals and Associated Liabilities

	Insolvencies		Bankruptcies		Proposals
	Volume	Liabilities ($ 000)	Volume	Liabilities ($ 000)	Volume	Liabilities ($ 000)
Source: Office of the Superintendent of Bankruptcy Canada (www.osb.ic.gc.ca).
Q4 2006	1 955	1 103 288	1 637	781 801	318	321 487
Q1 2007	2 099	3 977 097	1 745	3 718 389	354	258 708
Q2 2007	1 957	1 071 559	1 604	814 591	353	256 968
Q3 2007	1 738	939 070	1 437	654 297	301	284 773
Q4 2007	1 818	779 393	1 507	534 931	311	244 462
% Change
Q3 2007–Q4 2007	4.6	-17.0	4.9	-18.2	3.3	-14.2
Q4 2006–Q4 2007	-7.0	-29.4	-7.9	-31.6	-2.2	-24.0
Consolidated Annual
2006	8 171	5 552 228	6 747	3 897 194	1 424	1 655 033
2007	7 612	6 767 119	6 293	5 722 207	1 319	1 044 912

This decline represents a continuation of a long-running trend: the number of insolvencies has been falling since reaching a peak of 4111 in the first quarter of 1996. The current figure for the fourth quarter of 2007 is among the three lowest recorded since 1993 (only the third quarters of 2006 and 2007 were lower). Bankruptcies closely track the insolvency trend, also making the current figure the third lowest recorded since 1993. Proposals, on the other hand, have increased since before 1994, reaching a peak of 513 in the first quarter of 2002. Current levels are comparable with those recorded in the late 1990s. The declining trends are also reflected in consolidated annual figures: insolvencies fell by 6.8 percent from 2006 to 2007, bankruptcies by 6.7 percent and proposals by 7.4 percent.

Unlike the volume of insolvencies, the value of total liabilities fluctuates around an average of $1.6 billion, with intermittent spikes occurring as a result of failures of one or more sizable companies. The largest spike occurred in the second quarter of 2002, at $5 billion. The next significant spike occurred in early 2007 due to high-value insolvencies in the information and cultural industries. Both were spikes in bankruptcies; the pattern of proposal liabilities is unrelated to bankruptcies, fluctuating around an average of $411 million.

Recent figures indicate that insolvency liabilities declined by 17.0 percent in the fourth quarter of 2007 from the previous quarter and by 29.4 percent year-over-year. The components of insolvency revealed the following patterns: bankruptcy liabilities fell 18.2 percent from the previous quarter and 31.6 percent year-over-year, and proposal liabilities declined 14.2 percent from the previous quarter and 24.0 percent year-over-year. Consolidated annual insolvency liabilities rose by 21.9 percent from 2006 due to the spike in the first quarter of 2007; those for bankruptcies increased by 46.8 percent, while those for proposals fell by 36.9 percent.

^{Footnote 1} Bankruptcy refers to the liquidation of the debtor's business assets and the end of the commercial entity's operations.

^{Footnote 2} Proposals involve the settling of debts between the debtor and its creditors while still allowing the business to continue operating.

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