What is bankruptcy?
When a corporation is facing insolvency and is unable to meet financial obligations, the corporation may be required to consider bankruptcy. In Canada, Bankruptcy is a legal process by which a debtor can relieve their debt and is governed by the Bankruptcy and Insolvency Act. Once a corporation becomes bankrupt, there is an immediate stay of all legal proceedings against them. A trustee is appointed to take control of all of the company’s assets, realize them, and distribute the proceeds to the company’s creditors in accordance with the Bankruptcy and Insolvency Act.
Is bankruptcy the only option?
Bankruptcy is not the only option that an insolvent company may consider. Under the Bankruptcy and Insolvency Act, a company may deliver a proposal to its creditors or a notice of an intention to do so. The proposal is generally a plan on how the corporation can move forward and may include a proposal for an extension of time to pay creditors, an agreement for creditors to accept less than what is owed to them, or a scheme or arrangement. While the proposal is pending there is a stay of legal proceedings against the company. The corporation’s creditors then vote as a group or groups on whether to approve the proposal. If the creditors accept the proposal, it is submitted to the court for approval.
A company can additionally file for reorganization or restructuring under the Companies’ Creditors Arrangements Act. The Companies’ Creditors Arrangements Act offers a high degree of flexibility for a corporation but is only available where the total claims against the company exceed $5 million.
How does a company become bankrupt?
There are three ways for an insolvent company to become bankrupt:
- The company can become voluntarily bankrupt by way of an assignment through a trustee in bankruptcy;
- The company can become involuntarily bankrupt through a court application by one or more creditors of the company; or
- The company can become bankrupt after a failed proposal under the Bankruptcy and Insolvency Act.
A corporation cannot be discharged from bankruptcy until all of its creditors have been paid in full, or it files a proposal that is accepted by its creditors.
Can you be held personally liable for the corporation’s debts?
Generally, a corporation’s shareholders, directors, or officers cannot be held personally liable for the corporation’s debts in bankruptcy. However, there are a couple of exceptions. One being if a person has personally guaranteed any of the company’s debts or put up personal assets as security for the company’s debts, they can still be held liable. Also, the company’s directors may still be held personally liable for a number of liabilities including:
- Unpaid employee wages and vacation pay;
- Outstanding tax liabilities which were not deducted, remitted, or paid at the time they were due;
- Liabilities for the corporation’s environmental offences;
- Liabilities for breaching the duties of a director under Corporate Statutes.
Why use M.J. O’Nions Lawyer & Mediator for Bankruptcy and Insolvency?
The potential insolvency of your business creates immediate and complex issues. We have over 23 years of experience in advising B.C. businesses and expertise in creating unique solutions to fit your company’s specific needs. We will do this in a cost-effective manner while providing high quality professional service to you so you can focus on getting your business back to where it belongs.
How do I figure out what to do next?
You can start the process by filling out our contact form and a Vancouver business lawyer will contact you within 24 hours or simply give us a call at 604-449-7779. We will be happy to assist you.