When a company faces financial distress, there are three primary pathways into bankruptcy:
- Voluntary Assignment into Bankruptcy: This is initiated by the company itself.
- Creditor Petition: A creditor can file a petition for the Court to force the company into bankruptcy.
- Failure of a Division I Proposal or NOI Filing Requirements: If a Division I Proposal fails (through creditors voting to reject it, or the company failing to meet the provisions of the Proposal) or the company does not meet the necessary NOI (Notice of Intention to Make a Proposal) filing requirements and deadlines, it will result in the company being deemed to have made an assignment into bankruptcy.
Bankruptcy provides a company with the following:
Assignments into Bankruptcy
Choosing voluntary bankruptcy may not always be the sole option. Our team of Licensed Insolvency Trustees will guide you in evaluating the best course of action for your company. During this consultation, we will also assess any personal obligations you may have, both as a company Director and as a personal guarantor for company debts. Directors are personally liable for unpaid GST, employee remittances, wages, corporate taxes on dividend payments, and any debts for which they have signed personal guarantees.
In an assignment into bankruptcy, the debtor company assigns all its assets to the Trustee. The Trustee assumes control, evaluates the business, and determines the optimal strategy for asset realization. While in some cases, the company may continue to operate briefly, in most instances, it is wound up.
Under the Bankruptcy and Insolvency Act, company directors have specific responsibilities during the bankruptcy process. This includes attending the first Meeting of Creditors, where creditors inquire about the company's financial affairs, appoint inspectors, affirm the Trustee's appointment, and provide directions if necessary. Once the company's assets are liquidated, the Trustee distributes the net proceeds pro-rata among proven creditors, and concludes the administration of the bankruptcy process.
Petitioning a Company into Bankruptcy
Creditors may opt to seek a Court Order to petition an insolvent company into bankruptcy for various reasons. To do so, the petitioner must demonstrate that the requirements of the Bankruptcy and Insolvency Act have been met in order to have the company declared bankrupt.
The costs associated with filing the Court petition and the Trustee's administration expenses are covered by the petitioning creditor. Upon the company's forced entry into bankruptcy, the Trustee's duties mirror those in a voluntary assignment into bankruptcy.