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A woman wearing a protective mask walks past a closed DavidsTea store in Montreal on Wednesday, July 8, 2020. Insolvent beverage retailer DavidsTea is closing 82 stores in Canada and exiting the U.S. market as it focuses on its e-commerce business and supplying grocery stores and pharmacies. THE CANADIAN PRESS/Paul ChiassonThe Canadian Press

The number of business insolvencies dropped to a new record low in the third quarter of 2021, highlighting the pandemic’s unusual effect on the economy.

According to new figures from the Office of the Superintendent of Bankruptcy Canada, 536 companies filed a bankruptcy or proposal in the quarter ending Sept. 30, 2021. That is 15 per cent lower than the same quarter in 2020, and 35 per cent lower than the same quarter in 2019.

The department of Innovation, Science and Economic Development said it was the lowest level of business insolvencies in a quarter since at least 1987.

Insolvencies have been at record lows during the pandemic, despite the challenges of lockdowns and other public-health restrictions. Economists and business leaders have said they believe generous government subsidies staved off bankruptcies for many indebted firms. The main aid programs -- federal wage and rent subsidies -- ended for most businesses on Oct. 23, but remain available to tourism and hospitality businesses, which still face restrictions.

David Lewis, a licensed insolvency trustee in Edmonton and a spokesperson for the Canadian Association of Insolvency and Restructuring Professionals, said owners of financially troubled small businesses have been seeking his advice in recent weeks.

“We are getting phone calls,” he said. “For a while there, we weren’t even getting that.”

Mr. Lewis said he does not expect a tsunami of insolvency filings now that the subsidies are over, but a gradual normalization to prepandemic rates.

He said that after oil prices crashed in Alberta in 2014, insolvencies in the province did not peak until many months later, after business owners had time to reflect on the need to restructure.

During the pandemic, one issue with small companies is that their owners may just walk away from their businesses without dealing with creditors, he said. That would mean those indebted businesses stop operating, but are not measured by insolvency statistics.

“They don’t file insolvencies, so they’re not part of those numbers,” he said. “They just shut the doors and the business closes forever.”

Sohaib Shahid, director of economic innovation at the Conference Board of Canada, said that despite the low number of insolvencies, many businesses remain financially vulnerable because of debts taken on during the pandemic. He said that was likely to have a drag on economic recovery.

“Even those businesses that are able to pay down their debts and stay afloat may be forced to delay business investment and hiring plans,” Mr. Shahid said.

He said the government’s unprecedented subsidies, while necessary for many businesses to survive, also prolonged the lives of zombie companies, which continue for years despite being unable to service their debts.

The Bank of Canada has raised concerns that a relatively high number of zombie companies may be hindering productivity by tying up resources that could be used in more profitable ventures.

The sector with the largest share of insolvencies was accommodation and food services, which accounted for 74 of the 536 filings. That includes the high-profile insolvency filing from McEwan Enterprises Inc., the Toronto-based company owned by celebrity chef Mark McEwan that runs high-end restaurants and gourmet grocery stores.

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