Everything You Need to Know about Bankruptcy for Corporations
If you’re struggling with your corporate finances, you may be considering filing for bankruptcy. However, this is a big decision, and one that you know shouldn’t be taken lightly. So how do you know if corporate bankruptcy is the best option for your business? The team at J. Bottom & Associates Ltd. is here to help you make that decision and walk you through the process. We understand how difficult the decision to file bankruptcy is, but we also know that it’s sometimes the best option for businesses in financial trouble. Let us guide you through the process, so we can help your companies get the best possible outcome considering the circumstances. We’ve compiled a list of our most frequently asked questions to help give you the answers you need. Please reach out to us if you have additional questions or if you need to discuss your situation.
What is Corporate Bankruptcy?
When most people think of bankruptcy, they imagine individual consumers who have amassed thousands of dollars in credit card debt, mortgages, and other personal loans. But corporations can also reach a point where they are unable to pay off debt, requiring the need to file for corporate bankruptcy. Corporate bankruptcy is a legal status that provides protection from your creditors and creates a plan to liquidate assets to help pay back the debt you owe. Business bankruptcies are much more complicated than consumer bankruptcies, and as such, require the specialized skills and knowledge of an experienced legal team. J. Bottom & Associates Ltd. has experience dealing with the bankruptcies of incorporated businesses, which are also different than those of small business partnerships or sole proprietorships. With this experience and knowledge of the process, we’re able to walk you through the steps of bankruptcy and get you the best outcome possible.
Advantages & Disadvantages of Corporate Bankruptcy
Bankruptcy has the following advantages where a company cannot continue its operations:
- It takes the pressure and responsibility away from the owners.
- It provides for an orderly liquidation and collection of the company’s assets.
- It lows for an orderly distribution and determination of creditors’ claims.
Advice About Corporate Bankruptcy
We understand the hard work that you have put in over the years to establish your company. Together, we can work to help you develop a solution to resurrect or restructure so you feel confident in the future of your business. Learn more about the corporate bankruptcy resources available to you.
What Are the Options for Businesses in Financial Trouble?
Filing for corporate bankruptcy does not necessarily mean that your business will close. While it’s possible that your business will close, and your employees will lose their jobs, there is another option that allows you to continue operating while still protecting you from creditors. The team at J. Bottoms & Associates Ltd. will help you determine which path is best for you when your corporation is in financial trouble. As a bankruptcy trustee, we know the appropriate methods to help your business in its time of need. The following are two options available to those corporations that are struggling to pay their debts:
- Bankruptcy: As a corporation, filing for bankruptcy puts you in a legal state in which you have protection from your creditors. At the end of the process, the bankrupt corporation will likely no longer exist because all assets will be sold to repay the creditors.
- Proposal: A proposal is different from bankruptcy in that it still allows the corporation to continue to operate, but still protects from creditors. It is the best option for a business that is still viable but needs assistance in restructuring its debts. In a proposal, a corporation will make an offer to creditors to pay a percentage of the amount owed, extend the repayment period, or a combination of both. The creditors will then decide whether to accept or reject the proposal.
What is a Licensed Insolvency Trustee?
A Licensed Insolvency Trustee, or LIT, is an independent third party who is licensed by the Office of Superintendent of Bankruptcy to represent those who are filing for bankruptcy. The trustee will notify creditors of the bankrupt and report directly to the court in all matters related to the bankruptcy. This will include processing and assessing proofs of claim, investigating and reporting on the finances of the bankrupt, and, most importantly, overseeing the sale of the bankrupt’s assets and distributing the proceeds of these sales to the designated creditors. At J. Bottom and Associates Ltd., we are here to take on this fundamental role for corporations facing bankruptcy. Let us help you during these difficult times.
What is the Bankruptcy and Insolvency Act?
The Bankruptcy and Insolvency Act is the federal legislation that governs how bankruptcies, proposals, and receiverships are handled in Canada. The Office of the Superintendent of Bankruptcy uses this act and the rules and guidelines set within it to administer bankruptcies and proposals of corporations. The team at J. Bottom & Associates Ltd. has advanced knowledge of the Bankruptcy and Insolvency Act and knows the appropriate steps to take to help you file for bankruptcy and relieve your corporation of crippling debt. We’ll help walk you through the process, sharing our knowledge of how the process works, so you can be fully informed on what will happen and why.
How Does a Corporation File for Bankruptcy?
The first step in filing for bankruptcy in Canada is obtaining a Licensed Insolvency Trustee (LIT) to work with, as the process is not possible without their help. J. Bottom & Associates can act as your LIT throughout the process. During the first meeting, we will discuss your unique situation and lay out your options. Once we determine the best course of action, we will work together to collect all the information needed to properly prepare the necessary documents. Once all forms are ready and they have been signed, we will file it with the Office of the Superintendent of Bankruptcy. After the forms are submitted, the corporation enters the state of bankruptcy.
What Documents Do I Need to File Bankruptcy?
When you work with a Licensed Insolvency Trustee like J. Bottom & Associates Ltd., you don’t have to worry about having all the correct documents appropriately filled out. Our team will take care of these tasks for you. We will work with you to obtain the information we need to prepare the documents. This will include gathering information about your current financial situation. Once we have everything we need, we will fill out the materials for you and file them on your behalf with the Office of the Superintendent of Bankruptcy. Our team is here to help walk you through the entire process.
What Happens After Bankruptcy is Final?
In most cases, the bankruptcy of a corporation in Canada effectively dissolves the business, which means the company will no longer exist after the bankruptcy is finalized. Once all documents have been signed and filed with the Office of the Superintendent of Bankruptcy, the trustee working with you will sell all the assets of the corporation for a realizable value. The proceeds from these sales are then distributed to creditors following the rules and regulations outlined in the Bankruptcy and Insolvency Act. If you are not ready to call it quits on your corporation and still believe it is viable, our team can work with you to determine an alternative to bankruptcy, such as a proposal or other option. We’re here to help corporate businesses in their time of need, determining the best course of action.
Will Shareholders be Affected by a Corporate Bankruptcy?
For the most part, the bankruptcy of a corporation will not affect its individual shareholders or their credit ratings. Because a corporation and its shareholders are separate entities, shareholders are not responsible for a corporation’s debts. However, if a shareholder has made a personal guarantee to a creditor, such as a bank or a landlord, they may then be liable for some of the debt owed by the corporation. Your liability may increase if you are a director, as you will then be responsible for unpaid wages, vacation pay, employee source deductions and Goods and Services Tax (GST) or Harmonized Sales Tax (HST). If you are a concerned shareholder who wants to know more about their role in a corporation’s bankruptcy, you can reach out to our team for guidance.
Can My Personal Credit Rating Drop During a Business Bankruptcy?
Much like stated above, an owner and a corporation are two separate entities, and thus a corporation owner is not personally reliable for the corporation’s debt. This means your credit rating will not be affected by a bankruptcy on the corporation’s behalf. The only ways you may end up owing money during a corporate bankruptcy is if you have given a personal guarantee either for a bank loan or landlord agreement, or if you are a director. In smaller businesses, such as partnerships or sole proprietorships, business owners will likely be held responsible for debts incurred by the company. In these cases, both the business and the owner will likely have to file for bankruptcy.
Will Closing a Business Provide Protection from Creditors?
Though filing for bankruptcy will effectively dissolve a corporation, you cannot simply close your business and expect protection from your creditors. You must go through the process of bankruptcy to stop creditors from their pursuit of repayment. Even if you cease all operations and close the doors of your corporation, creditors are still legally allowed to sue the company for repayment. Closing the company also does not end the requirement or cost to file tax returns. To get the best outcome for your corporation, it’s best to hire an experienced bankruptcy trustee like J. Bottom & Associates. We will help you determine the best path forward for your business and represent you in all bankruptcy issues. Please reach out to us today to learn more about how we can help you or set up a time to discuss your current situation.