Northern Economist 2.0

Friday, 21 April 2017

Evaluating Northern Ontario’s Growth Plan-Part IV (Business and Consumer Insolvency)

This is the fourth in a series of posts in which I am presenting evidence evaluating the Growth Plan for Northern Ontario, which was released on March 4, 2011.  The 25-year plan was to guide provincial decision-making and investment in northern Ontario with the aim of strengthening the regional economy. The goal was strengthening the economy of the North by:
  • Diversifying the region's traditional resource-based industries
  • Stimulating new investment and entrepreneurship
  • Nurturing new and emerging sectors with high growth potential.
While the provincial government did commit itself to the development of performance measures for ministry specific initiatives that supported the implementation of the plan, I will be using a broader set of indicators of overall economic performance that are supported by the availability of readily accessible public data.  My first post was an overview while my second post looked at employment and my third post looked at new investment spending as measured by building permits. In this post, I will be looking at consumer and business bankruptcies or insolvencies as an indicator of economic health.  All other things, during times of economic distress, one would expect to see more consumer and business bankruptcies while during better economic times, the numbers should be expected to decline.
Insolvency statistics on a regional basis for both consumers and businesses are available in the reports of the Office of the Superintendant of Bankruptcy Canada.  Economic regions as defined by Statistics Canada standard geographical units are what are used and therefore the numbers are available for both the northeast and the northwest. In terms of the definitions used in presenting these statistics:

Bankruptcy: The state of a consumer or a business that has made an assignment in bankruptcy or against whom a bankruptcy order has been made.

Business: Any commercial entity or organization other than an individual, or an individual who has incurred 50 percent or more of total liabilities as a result of operating a business.

Consumer: An individual with more than 50 percent of total liabilities related to consumer goods and services.

Insolvency: A bankruptcy or a proposal.

Proposal: An offer to creditors to settle debts under conditions other than existing terms. A proposal is a formal agreement under the Bankruptcy and Insolvency Act.

Figure 1 presents consumer insolvencies in northern Ontario from 2010 to 2016 while Figure 2 presents business insolvencies. While rates of insolvency are often also presented, given the overall stability in both business numbers and population in the north, there should be little difference in trends between the use of rates and totals.

Total consumer insolvencies actually declined from 2010 to 2014 but have since begun to increase.  Overall, there was a decline from 3,659 insolvencies in 2010 to 3,397 in 2016 –a decline of 7 percent.  Total business insolvencies fell from 2010 to 2013 and then rose from 2013 to 2015 and then took a sharp decline in 2016.  Between 2010 and 2016, the total number of business insolvencies in northern Ontario dropped from 89 to 31 – a decline of 65 percent.  What is also interesting is that in the case of business insolvencies, the sharp drop in 2016 was a northeast Ontario phenomenon mainly as they actually rose in the northwest.


After a period of improvement in consumer insolvencies, it would appear that the last few years has seen an increase and this may reflect recent stress on consumers and households in the region.  The insolvency numbers for northern Ontario suggest improvement in the business environment in terms of the number of business insolvencies.  However, it should be noted that the total number of businesses in northern Ontario at least for the period 2010 to 2014 has been stable at approximately 40,000 enterprises.  The period since 2014 has seen a redefinition in the manner in which Statistics Canada counts businesses and therefore the numbers are not directly comparable.  Still, if we assume that the total number of business is approximately stable, then there has been little in the way of net new growth in business formation.  The decline in insolvencies may partly reflect survival of the fittest in a slow growth environment in which weaker business entities have already disappeared leaving only relatively stronger firms behind.