There are three ways that a company can be placed into bankruptcy:
- a voluntary assignment by the company
- a Court order granted pursuant to a petition filed by a creditor
- a failed Division I Proposal (Formal Proposal) or failure to meet certain filing requirements and/or deadlines with respect to an NOI or Proposal
Bankruptcy provides for the following:
- an orderly and fair distribution of a bankrupt’s property among its creditors
- an investigation to be made of the affairs of the bankrupt
- the setting aside of preferences, transfers at undervalue and other fraudulent transactions
A voluntary bankruptcy may not necessarily be the only option available to a company. Only after discussing your options with one of our Licensed Insolvency Trustees (“LIT”), will you be able to determine your best course of action.
When reviewing your options, you need to consider any personal obligations that you may have, both as a Director of the company and as a personal guarantor of any company debts.
In a voluntary bankruptcy, the debtor company assigns all of its assets to a Trustee. The Trustee will take possession and control of the company’s assets, evaluate the business and determine the best course of action to realize on the company’s assets. In most cases, the business is wound up.
At the first meeting of creditors, the creditors will provide direction to the Trustee with respect to the bankruptcy administration and how the company’s assets will be realized on. Once the debtor’s assets are realized on, the Trustee makes a distribution of the net proceeds to the proven creditors on a pro-rata basis.
A creditor may wish to petition an insolvent company into bankruptcy for several reasons. Please feel free to contact one of our LIT’s to discuss the pros and cons of your particular situation.
The costs of the filing the petition and the Trustee’s costs to administer the bankruptcy may be borne by the petitioning creditor.
The duties of the Trustee are set out in the BIA and are the same as in a voluntary bankruptcy.
For further information on bankruptcies, please contact a member of our corporate team.