Businesses in Canada and beyond are facing an increasing number of insolvencies — impacting economies, communities, and employees. Directors and officers, who are held to a higher standard of accountability, face additional risks during these challenging times.

To help adequately protect personal assets and more, a comprehensive Directors and Officers (D&O) insurance policy is essential in cases of bankruptcy. Being proactive with D&O insurance is critical, as insurance companies have become stricter in their underwriting practices and they are closely scrutinizing businesses for revenue, overall financial health, and operations (among other factors).

Background: Business Bankruptcies in Canada

The Office of the Superintendent of Bankruptcy reports a 15-year high in business bankruptcies in Q3 2024, the worst since the 2008 financial crisis. For the 12 months ending January 31, 2025, insolvencies rose by 11.7%, with construction, transportation, and warehousing industries hit the hardest.

Business Bankruptcies in the United States

Meanwhile in the U.S., its Department of Labor noted 22,762 business bankruptcy filings in 2024, a 16.2% increase from 2023, along with 481,350 non-business cases, filed by individuals or households who may be facing overwhelming financial pressures from credit card debt, medical bills, or mortgages.

What’s Causing Business Bankruptcies?

There are a few key factors that are hurting businesses and driving more into insolvency:

• Economic Uncertainty: Post-COVID effects and global economic disruptions have caused job losses, closures, and financial instability
• Inflation: Rising costs for materials, equipment, labour, and energy have increased operational expenses
• Higher Interest Rates: The Bank of Canada’s rate hikes to curb inflation have raised borrowing costs, limiting access to capital and increasing financial uncertainty
• End of Pandemic Support: Businesses reliant on government aid during COVID are struggling as these programs have ended, contributing to more bankruptcies

What Liabilities Do Directors and Officers Face in Bankruptcy or CCAA?

During bankruptcy or Companies’ Creditors Arrangement Act (CCAA) proceedings, directors and officers may face personal liability for their decisions. Common lawsuits include:

• Creditor Claims: Allegations of mismanagement or breach of fiduciary duty leading to insolvency
• Shareholder Lawsuits: Claims that directors failed to protect shareholder interests or made poor decisions
• Regulatory Actions: Government agencies pursuing violations of securities laws or regulations

A well-structured D&O insurance policy can provide coverage for claims during insolvency, though policies may have exclusions for fraud or intentional misconduct. Maintaining detailed records of decisions is critical to demonstrate good faith and diligence. While bankruptcy or CCAA plans may release some claims against directors, lawsuits can still proceed, underscoring the need for robust protection.

Why Choose Staebler Insurance for D&O Coverage?

With insolvency rates climbing, expert guidance and tailored Directors and Officers insurance coverages are vital to protect directors and officers from financial risk.

Act early and use an experienced broker whose expertise can design comprehensive coverage that meets your business’s unique needs.

Protect your leadership with the right D&O insurance. Contact a Staebler Insurance Broker to learn more about how we can help you safeguard your future with D&O insurance.

Special thanks to insurance company partner CNA Insurance for the article inspiration and insights.

. . .
Staebler Insurance is a general insurance broker specializing in car insurance, home insurance, small business insurance, and commercial insurance. Staebler Insurance Brokers proudly serve Kitchener, Waterloo, Cambridge, Guelph, Stratford, Listowel, Fergus, Elora, Wellington County, Perth County, Waterloo Region, the Greater Toronto Area, Golden Horseshoe, Niagara Region, and all over beautiful Ontario, Canada. Get a Quote to get started today.