Businesses in Canada have faced many economic and financial challenges over the last decade from bursting of the dot-com bubble in 2000 to the recent financial crisis and the recession that followed. In these difficult times, business insolvencies are a useful indicator of the health of Canadian small and medium-sized enterprises (SMEs).

The chart displays the annual number of business insolvencies in Canada over the past decade. The number of business insolvencies has steadily decreased from 12,246 in 2001 to 5,226 in 2010, corresponding to an annual average decline of 9.0 percent. As shown in the chart, the recent recession (Q4 2008 to Q2 2009) did not trigger a surge in business insolvencies in Canada as the number of insolvencies continued to fall on an annual basis. This unexpected result can be partly explained by the fact that domestic demand for goods and services increased at an average annual rate of 4.2 percent between 2007 and 2009.

Since Canadian SMEs are less export oriented than larger firms (about 1 in 50 small businesses export, wheras slightly more than 1 in 3 large firms export), this increase in domestic demand helped prevent a surge in the number of business insolvencies in Canada as the recession affected mostly exporters.

Source: Office of the Superintendent of Bankruptcy Canada (www.osb.ic.gc.ca).

From 2009 to 2010, the annual number of insolvencies dropped in all major industries, corresponding to an overall decline of 22 percent. By industry, the number of insolvencies for construction, retail trade, and accommodation and food services — industries that have historically accounted for approximately 40 percent of all business insolvencies — decreased by 14 percent, 21 percent and 22 percent respectively.

1 Insolvencies include both proposals (i.e., propositions to creditor to restructure) and bankruptcies. Bankruptcies account for 78 percent of insolvency cases.