Debt isn’t something that any of us like to think about, and especially not bankruptcy.
If you’re a business who’s looking into bankruptcy because you’re having difficulty with your debt, you might wonder what you need to know about insolvency. There are different forms of bankruptcy, and process depending on your situation.
Variations Of Bankruptcy
There are two variations of bankruptcy when it comes to businesses, those are non-incorporated or incorporated bankruptcies. If you are the sole proprietor or are in a partnership that means that you and your business are essentially the same entity.
Your business debts are your debts. When you visit this site you can see insolvency and personal bankruptcy explained with a little more clarity. As all assets and debts tied within the business are the same as the individual, there is no difference between this form of bankruptcy and personal bankruptcy in Canada.
With incorporated business bankruptcy, the business is considered a corporation, with all assets and debts being tied to the business as an entity. This helps serve to protect a small business owner from being liable for forfeiting their assets.
However, there are exceptions in cases where a business owner has offered personal assets as collateral for business finances. In these instances, the individual will need to forfeit the securities they offered.
If your business is unable to address tax obligations, the Canada Revenue Agency will be the creditor with the highest rank in obtaining company assets. Directors of the company may be held personally accountable if they haven’t addressed tax source rebates properly.
The Process
The requirements for the sole proprietorship of a business fit the profile of personal bankruptcy, as they are the same. You must be over 1000$ in debt, and you must be unable to pay your debts on time and are unable to reduce your debt because of this. You need to find a Licensed Insolvency Trustee (LIT) to discuss your best financial options.
They will be able to help you fill out the necessary forms and send them to the Office of the Superintendent of Bankruptcy Canada. The trustee may decide to sell some physical assets that are not protected to pay off debts, however, in some cases, RRSPs and other assets may be protected.
Depending on your income you may be required to make surplus income payments to pay off a portion of your owed amount, eventually, you will become discharged from your debt.
Just as with personal bankruptcy, corporate entities seeking to become insolvent should speak to a LIT to verify their options. Thankfully, you are protected from a degree of liability by having a corporate entity. However, as mentioned earlier, any personal assets that are used as security are liable to be sold by the trustee. If the loss of work is involved, employees may be entitled to receiving severance pay.
This is why it’s so important to work with a LIT to discuss your options. Creditors may also file to seize your assets and declare you bankrupt if you are unable to pay your debts.
Is Bankruptcy The Only Option?
One of the more obvious alternatives to bankruptcy would be evaluating your debts and expenses and seeing if there is any room for you to pay your business debts at all. You might attempt to talk to creditors and see if you can negotiate for a lower amount of debt, and in many cases, they are willing to accept this. Individuals can file for a consumer proposal as long as their assets don’t exceed their debts, and their debt is below 250 000$.
Oftentimes people worry if their business will be sold if they file for personal bankruptcy, but if the business is making revenue, likely, there won’t be a reason to sell. Both corporate entities and sole proprietors/partners may decide to consolidate all of their into one loan to achieve a better rate of interest. A LIT can help discuss with you in detail which of these options are best suited for your needs.
It’s necessary that you consult with a LIT prior to making any business decision regarding bankruptcy. This will help you decide if this is the best option for you, or if you need to consider alternatives.
Remember that certain debts cannot be discharged from such as fines and that there are cases where personal assets cannot be protected even when a business is a corporate entity. Keeping this information in mind, you’ll be able to find the best option for you and your company.
