Davies report reveals broad economic pressure as trade uncertainty weighs on key industries
Canadian businesses are entering a period of deepening financial instability, with new data showing sustained corporate insolvency levels and growing concerns around US trade policy. While the anticipated effects of 2025’s US and Canadian tariffs have not yet been fully registered in formal insolvency filings, economic stress across key sectors is building fast.
That is according to the latest edition of "Insolvency Now" by Davies Ward Phillips & Vineberg LLP. The report notes that filings under the Companies’ Creditors Arrangement Act (CCAA) remained historically high throughout 2024. The sectors most affected – manufacturing, wholesale trade, and retail – form a chain of vulnerability that appears increasingly exposed.
Davies partner Natasha MacParland, lead author of the report, points to a ripple effect: weakness in manufacturing is already putting pressure on wholesale and retail trade as strain travels up and down the supply chain.
The tariffs introduced in April 2025 – 25 percent on a wide range of Canadian exports to the US and retaliatory measures from Canada – are expected to magnify this pressure. However, the report is clear that the full economic impact is still forthcoming. “We haven’t seen the tariff effect on manufacturing, retail trade and wholesale yet,” MacParland explains. “I think we’re probably going to see whatever that tariff effect is… in the further quarters of this year.”
MacParland emphasizes that the key variables will be how long the tariffs stay in place and how broad their application becomes. Referring to the 2018–2019 tariff round under the Trump administration, she notes that those measures were shorter and more targeted. “They were much more limited,” she says. “So I think the duration and magnitude of the tariffs is… going to be the key impact on whether… it triggers more filings in those tariff-exposed industries.”
The report shows that while manufacturing leads in insolvency filings, retail and wholesale trade are not far behind. “High inflation, slowing growth… was already increasing the number of insolvencies,” MacParland says. “And when you layer on that… a dramatic tariff effect, I do think you’re going to see a lot of… companies that are going to meet the definition of insolvent.”
So far, these early indicators of economic distress are not being met with clear policy solutions. The report draws a line between the current situation and the government support issued during the COVID-19 pandemic. One concern she raises from that example is the risk of artificially supporting businesses that are no longer viable. “What you don't want to have happen is this zombie firm effect,” she explains, adding that in a healthy economy, “we do need those companies to be either redeployed to strategics or new management… in order to maintain a healthy and robust economy.”
MacParland cautions against repeating that approach. “Maybe we should have been more particular about the companies that we supported, maybe targeted to industries we know are going to be affected by tariffs,” she says. “They should meet certain basic financial metrics… before they’re able to access the funding.”
The report also explores how Canadian businesses are adapting to economic pressures through the strategic use of restructuring law. BIA proposals and CCAA proceedings are being used more flexibly, sometimes in sequence. “It’s not unusual, frankly, to see a proceeding start as a proposal proceeding and then convert to a [CCAA] once the strategy becomes clearer,” MacParland says.
She cites the Body Shop Canada case as a recent example on which her firm has advised. “It was triggered by external circumstances in the UK, and so the Canadian company had to react fairly quickly,” she says. “So that’s why we filed a proposal proceeding there, but then we ultimately converted it to CCAA in order to save all the stores, or most of the stores.”
While insolvency activity is rising, business formation appears to be falling behind. The report notes a net loss of 391 businesses in 2024, down from a net gain of 4,580 in 2023. MacParland says some closures may be voluntary, but the direction is troubling. “Business closings really do seem to be higher than the business openings,” she says. “So that’s not ideal.”
Policy uncertainty remains high with a review of the Canada-United States-Mexico Agreement (CUSMA) approaching in 2026. “What I like to see is just certainty, whatever they decide to do… lead time and certainty as to what’s going to happen,” MacParland says. “It’s really been quite difficult in this environment. You wake up one day, and there’s a tariff that you weren’t expecting, and then the next day, there’s not.”
Cross-border filings are also rising in tandem with overall restructuring activity. “There’s always been a strong Canada-US cross-border restructuring practice,” she says. “And I think it’s just inevitable when you have more filings that you’re going to have more cross-border filings.”
The report offers a final warning for those watching business risk in the year ahead. “If these are… long, protracted and deep tariffs, it’s going to require… a fundamental shift,” MacParland says. For industries like automotive, that shift could be significant. “Ultimately… consumers are ultimately going to end up paying for it,” she adds. “In a period of inflation with increased costs because of tariffs and… slowing growth… that strikes me as a bad set of factors for consumers.”
