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Will business bankruptcies continue to rise?

Will business bankruptcies continue to rise?

Posted on: 4/3/2018 | Author: ATB Financial's Economics + Research Team

​​A few weeks ago, The Owl explored how consumer bankruptcies and proposals are rising in Alberta. But what about businesses? How are they managing in the post-recession?

The orange line in the graph below shows business bankruptcies in Alberta over the last seven years. Ironically, bankruptcies were high in 2011 and 2012, years in which the economy was strong. Bankruptcies fell over the following two years and reached a low in the third quarter of 2015—just as the recession was reaching its peak.

Business bankruptcy proposals (the blue line) also reached their low point during the recession. (The definition of a proposal is an offer to creditors to settle debts under conditions other than existing terms. It is often the precursor to bankruptcy.)

What explains this paradox?

It could be that business bankruptcies lag economic conditions. The high level of bankruptcies in 2011 could be the echo effect of the nasty recession of 2009-10. Businesses may have held on through the global financial crisis, but unable to manage their soaring debt levels even as the economy turned around in 2011.

The same pattern could be repeating today. Even though Alberta’s economy is gradually improving, many businesses may still be struggling with high debt. Indeed, both bankruptcies and proposals have crept higher since the low ebb in 2015. If this is the case, 2018 could still see rising numbers of business bankruptcies—an unfortunate remnant of the oil price downturn. Even if the recession is technically over, it’s impact continues to be felt.​

Business Bankruptcies, graph​ ​​​

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