Small Business Bankruptcy in Canada
Small businesses that are struggling financially eventually need to make a decision about the future of the company. One option that small business owners may consider is small business bankruptcy.
Bankruptcy is typically the most “well-known” option when it comes to dealing with financial difficulties. However, while the term itself is commonly known, most people aren’t aware of the details and what the term actually means. Bankruptcy can be a complicated process so it is important to understand as much as possible about this process before you proceed.
What is Small Business Bankruptcy?
Bankruptcy is a legal process that allows a business to eliminate debts, sell off assets and ensure that the company’s creditors are given their fair share. It is the only legal way to wind down a company without paying off all of the debts. A company can decide to file for bankruptcy when it cannot pay its bills. More often than not, the business operations of a company stop at the date of bankruptcy.
Since filing for bankruptcy typically means that the business will stop operations at the date of bankruptcy, small business bankruptcy should be considered the “last resort” for dealing with financial obligations. However, it may the right option for you, depending on your situation. If you are considering filing for small business bankruptcy, you will want to make sure that you fully understand the situation.
It is very important to note that, if your business is a sole proprietorship or a partnership, then the individuals who own the company are the ones who become bankrupt. This is because there is no legal separation between business assets and personal assets with these business structures. A business bankruptcy for these organizations is essentially a personal bankruptcy for the owners.
However, if your small business is incorporated, then it is a legally separate entity. All assets (and debts) are owned by the business. If an incorporated small business cannot meet its financial responsibilities, it can file for business bankruptcy.
Filing Small Business Bankruptcy
If you have decided to consider small business bankruptcy, you will need to speak with a Licensed Insolvency Trustee. A Trustee is an individual who has completed training and who is certified by the federal Office of the Superintendent of Bankruptcy to administer bankruptcy processes.
When you meet with a Trustee, he or she will review the financials of your small business. The Trustee will then provide you with the details on all options that are available to you, not just those that he or she can administer. This ensures that you have all of the details that you need to make an informed decision. If your organization is having financial issues, you might think that small business bankruptcy is the only option for you. However, this often isn’t the case. For many small businesses, there are other options available, depending on the financial status of the organization and the details of your particular situation.
A Licensed Insolvency Trustee can help you understand the options that may be available to your small business. Most Trustees offer the initial consultation at no charge. This gives them an opportunity to review your company’s financial situation and provide you with details on the options that are available to you.
One option that may be available, depending on your situation, is a Proposal to Creditors. This is a situation where a business arranges to pay its creditors lower monthly payments over a longer period of time and/or to repay only a portion of what the business owes. This process allows the business to remain in operation and to avoid bankruptcy while still making sure that creditors receive at least part of what is owed to them. A Trustee will discuss this option with you if it is available as an alternative to filing for small business bankruptcy.
It’s important to remember that it is always your decision as to how you will proceed. The Trustee will not pressure you or attempt to convince you of one method over another.
If you decide that small business bankruptcy is the right option for you, the Trustee will complete all of the required paperwork and inform your creditors that your business is filing for bankruptcy. He or she will also handle your assets and make sure that they are sold or disposed of in order to ensure that creditors receive their share. The specifics of this process will depend on your particular situation. The bankruptcy will also formally wind down the company.
