Bankrupting an Incorporated Company

Bankrupting Incorporated Companies

Steps involved in bankrupting an incorporated company or business in Canada.

Incorporated Companies & Bankruptcy

In Canada, the process for bankrupting an incorporated company or corporation, is, in some ways similar to the process in the United States.

However, there are differences that must be taken into account.

Here, we’ll discuss the steps involved in bankrupting an incorporated company in Canada, including the legal requirements and procedures that must be followed.

Incorporated Company Eligibility

The first step in bankruptcy is to determine if the corporation is eligible.

In order for an incorporated company to qualify for bankruptcy, the corporation must be a legal entity, such as a corporation or limited liability company, and must owe more debt than it can repay.

The corporation must have a permanent establishment in Canada, which means it must have a physical presence in the country.

The shareholders credit is usually not affected when the company goes bankrupt, only the company.

Incorporated Companies – Types of Bankruptcy

Once an incorporated company is deems eligible the next step is to choose the type of Insolvency event that is best for the corporation.

There are two types of insolvency events that corporations can file for in Canada:

bankruptcy,
- corporate bankruptcy similar to a Chapter 7 bankruptcy in the United States
- in this type of bankruptcy, the corporation’s assets are sold off to repay creditors
- most common type of bankruptcy for corporations in Canada

A Division 1 proposal,
- is more or less a “reorganisation of the company” , and
- is similar to Chapter 11 bankruptcy in the United States.

In this type of insolvency event the corporation is able to keep its assets and continue operating while it restructures its debt. This type of bankruptcy is often used by larger corporations in Canada.

Incorporation Bankruptcies – Notice of Intention

The initial step prior to filing a Division 1 Proposal in some cases is to file a notice of intention (NOI).

In business and incorporation bankruptcies the Division 1 Proposal is filed with the official receiver, who is an officer of the Office of the Superintendent of Bankruptcy.

The Division 1 Proposal stays all collection proceedings against the corporation and allows them to structure the proposal they are going to offer to their creditors.

The Notice of Intention used in a corporation bankruptcy, includes the statement of affairs, a list of the corporation’s creditors and the amount of their claims, as well as a list of the corporation’s assets and liabilities.

Business Bankruptcy & Meetings with Creditors

In business and incorporated company bankruptcies once the proposal is filed, the corporation must meet with the Trustee and its creditors to discuss the proposal for restructuring its debt.

Creditors of the business have an opportunity to vote on the proposal and may also propose their own plan. If the proposal is accepted by the majority of creditors, it must then be approved by the court.

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Certificates of Completion

The final step in a business or incorporated company bankruptcy is to obtain a certificate of completion.

This certificate is issued once the corporation has fulfilled all of its obligations under the bankruptcy process. The obligations can include:

the sale of assets, and
payment of debts

Once the certificate is issued, the corporation can emerge from bankruptcy protection and continue operating as a going concern.

It’s important to note that once any corporation files for bankruptcy, it will be subject to the oversight and direction of the bankruptcy & insolvency trustee.

Sole Proprietor Bankruptcies

The trustee’s role is to ensure that the corporation’s assets are sold and the proceeds are distributed to creditors in a fair and efficient manner.

Bankrupting or filing a proposal for an incorporated company in Canada is a legal process that requires the corporation to:

meet certain eligibility requirements, and
can involve the filing of a notice of intention,
meeting with creditors and
obtaining a certificate of completion.

It’s important for the corporation facing bankruptcy to work closely with a licensed insolvency trustee throughout the process. The trustee can ensure that all legal requirements are met while providing a successful outcome.

Incorporated Businesses are Legal Entities

Incorporated businesses are legal entities that have the ability to own property and receive credit or loans, but they are separate entities or beings from their owners.

As shareholders, the owners have a stake in the company but they do not own the property or incur the debts of the company, t.

Directors may have personal liability for the incorporated company for things such as taxes, debts they have signed for personally, and payroll deductions.

Incorporated businesses offer liability protection for its owners. In the event of bankruptcy, only the assets of the business can be taken, not the personal assets of the owners.

This means that when an incorporated company goes bankrupt, only the company is responsible for any losses and not the shareholders or directors. Shareholder credit is typically not affected when the company goes bankrupt.

When a business files for bankruptcy, the following occurs:

The company is forced into or voluntarily seeks bankruptcy protection
All of the company’s property assets are turned over to a Licensed Insolvency Trustee
The trustee sells the property of the bankrupt company and distributes the money to any creditors.

Many times shareholders or the owners of the company can buy back the assets by personally buying the assets for the fair market value from the bankruptcy trustee.

Speak to an Insolvency Trustee

Are you looking for answers about insolvency and a business bankruptcy? Look no further!

Our team of experienced insolvency trustees is here to help. We’re happy to provide you with the guidance and support you need, whether you have questions or just need some advice.

Don’t hesitate to reach out to us! We invite you to give us a call at 905-721-7506, whether it’s over the phone or in-person at one of our offices.

We’re dedicated to providing you and your business with the service and support you need. You can reach us without any cost or obligation, so don’t hesitate to contact us today!