January 21, 2010 / 4:41 PM / in 8 years

Canadian bankruptcies rise in November

TORONTO (Reuters) - Canadian bankruptcies rose 2.4 percent in November from a year earlier as consumers struggled to repay debts, but business bankruptcies were down sharply, suggesting the worst may be over for corporate insolvency.

The number of consumer bankruptcies in November rose 3.9 percent from November 2008 to 8,482, while business bankruptcies fell 21.7 percent to 396, the Office of the Superintendent of Bankruptcy Canada said in a report.

Business filings have now fallen on a year-over-year basis for 10 of 11 months in 2009 -- a sign that corporate balance sheets have weathered the recession well, said Royal Bank of Canada economist David Onyett-Jeffries.

“Canadian businesses continue to buck the trend of previous recessions by avoiding bankruptcy. This is a continued a testament to firms’ ability to manage debt levels leading up to the economic downturn as well as to maintain substantial liquidity buffers against economic shocks,” Onyett-Jeffries said in a research note.

Both consumer and business bankruptcies were down from October, a seasonal trend. Personal bankruptcies were down 3.8 percent from the previous month, while business bankruptcies were 7.7 percent lower.

“In the last 10 years, total insolvencies filed in the month of November have been lower than in October on seven occurrences,” the Office of the Superintendent of Bankruptcy Canada said in a statement.

The pattern of consumer bankruptcies has been affected by new bankruptcy legislation, put in place in September 2009 to encourage restructuring as an alternative to bankruptcy.

Onyett-Jeffries said the change made the cost of discharging a bankruptcy more expensive, bringing forward some claims and contributing to a drop in October and November.

Still, the slowing pace of personal filings is a good sign, he said.

“The drop in consumer bankruptcy filings appears to be a somewhat positive sign that Canadian households are getting a better grasp on their finances,” Onyett-Jeffries wrote.

The report showed business bankruptcies were concentrated in construction, manufacturing, transportation and warehousing, professional, scientific and technical services, and accommodation and food services, but the level of bankruptcies in most sectors was down from a month earlier.

Bankruptcies were up from a year earlier in only a few categories, including mining and oil and gas extraction, a sector that has been hard-hit by the global recession and the drop in commodity prices. Bankruptcies in the sector were up 66.7 percent from a year earlier, but down 28.6 percent from October.

Reporting by Andrea Hopkins; editing by Peter Galloway

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