What is corporate bankruptcy?

Corporate bankruptcy is a legal process used when an insolvent company cannot meet its financial obligations and its assets must be administered under the Bankruptcy and Insolvency Act.

How can a company become bankrupt?

A company can enter bankruptcy voluntarily, through a creditor petition, or following certain failures involving a Division I Proposal or Notice of Intention to Make a Proposal.

What happens to a company's assets during bankruptcy?

The company assigns its assets to the Licensed Insolvency Trustee, who evaluates and realizes assets and distributes net proceeds to proven creditors according to applicable law.

Can a company continue operating after filing bankruptcy?

In some cases a company may continue operating briefly, but most corporate bankruptcies ultimately involve winding up the business.

Can directors be personally liable for corporate debts?

Directors may have personal liability for certain obligations, including some statutory liabilities and debts supported by personal guarantees.

What happens to creditors in a corporate bankruptcy?

Creditors can file proven claims and may receive distributions from realized assets according to applicable priority rules.

How long does a bankruptcy last?

The length of the bankruptcy depends on a few factors – whether you have ‘surplus income’ (see below) and whether you have been bankrupt before. If you have no surplus income and have never been bankrupt before, you will be eligible for an automatic discharge after nine months.

How long does the Consumer Proposal last?

A Consumer Proposal must be completed within 5 years. Usually the payments are monthly (over 60 months), but a Consumer Proposal can also include a lump sum payment, or a combination of the two. If your finances allow, you can pay it off sooner than the agreed-upon payment schedule lays out.

What is a bankruptcy?

A bankruptcy is a legal process to discharge your debts. It is a declaration that your debts are too high for you to repay – and far better than the old concept of a ‘debtor’s prison’! It allows for a fresh start, while giving your creditors some return on what’s owed only if you have a level of income that allows for payments to be made to them, or unprotected assets that can be liquidated (however, most common assets are protected during this process – see below for more information on protected personal assets).

What is a Consumer Proposal?

A Consumer Proposal is an offer to your creditors to pay back a percentage of what you owe them, based on your ability to pay. It is governed by the Bankruptcy and Insolvency Act, administered by a Licensed Insolvency Trustee. Unlike other negotiated debt settlement plans, it is legally binding on all creditors and usually involves paying back less than the total amount of your debt.

What is a Licensed Insolvency Trustee (LIT)?

Licensed Insolvency Trustees (LITs) are federally regulated professionals who provide advice and services to individuals and businesses to reorganize and resolve financial difficulties with expertise and compassion. LITs help individuals or businesses make informed choices to deal with their financial difficulties. They are the only professionals able to administer bankruptcies or proposals.

Corporate Bankruptcy in BC | Campbell Saunders Ltd

Corporate bankruptcy is a formal process for incorporated businesses that can no longer manage their debts. A Licensed Insolvency Trustee takes control of the company’s assets, reviews its financial situation, and distributes available funds to creditors based on the rules set out in Canada’s Bankruptcy and Insolvency Act.

It is important to understand that insolvency and bankruptcy are not the same thing.

Insolvency means a company cannot pay its debts, while bankruptcy is one possible legal solution. In most cases, the business will stop operating and be wound down, but the right path depends on the company’s finances and whether other options are still available.

Types of Businesses That Can File for Corporate Bankruptcy

Corporate bankruptcy is generally available to incorporated businesses because the company is legally separate from its owners. This may include:

Small and medium-sized corporations
Privately owned companies
Professional corporations
Incorporated businesses that are still operating
Corporations that have closed but still have unpaid debts

The process is different for other business structures:

Sole proprietorships: The business and owner are legally the same, so business debts are usually treated as personal debts.

Partnerships: Personal responsibility may depend on the partnership structure and the agreements in place.

A Licensed Insolvency Trustee can review how your business is set up and explain which debt relief options may apply.

Should Your Business Consider Bankruptcy?

Corporate bankruptcy may be worth considering when the company can no longer keep up with its financial obligations and there is no realistic path back to stability.

Common warning signs include:

The business cannot pay bills, loans, or suppliers on time
Debts are greater than the value of the company’s assets
CRA debt, payroll obligations, or other tax balances continue to grow
Creditors are threatening legal action or trying to seize assets
The company no longer has enough cash flow to continue operating
A major client, contract, or source of revenue has been lost
Previous attempts to restructure or negotiate with creditors have not worked

Bankruptcy is not always the only option. Speaking with a Licensed Insolvency Trustee early can help you understand whether corporate bankruptcy, a Division I proposal, restructuring, or another solution may be more appropriate.

Alternatives to Business Bankruptcy in Canada

Corporate bankruptcy is not always the only option. When a business still has a realistic path forward, Campbell Saunders Ltd. can review its finances and help determine whether another solution may be appropriate.

Possible options include:

Division I proposal: A formal process that allows a company to offer creditors a plan to repay part or all of its debts over time. If accepted by the creditors and approved by the Court, the proposal becomes legally binding.

Informal proposal: A negotiated arrangement with creditors that may provide more time to pay, revised payment terms, or another practical solution without using a formal insolvency process.

Business review: A detailed assessment of the company’s cash flow, operations, debts, and future viability. This can help identify whether the business can be improved, restructured, sold, or wound down.

Receivership: A process in which a receiver takes control of some or all of a company’s assets, often after a secured creditor takes enforcement action.

The right approach depends on the company’s financial position, creditor pressure, available assets, and ability to continue operating. A Licensed Insolvency Trustee can explain each option and help you understand the risks before moving forward.

How Can a Company Enter Bankruptcy?

A company can enter corporate bankruptcy in three main ways:

Voluntary assignment into bankruptcy: The company chooses to file for bankruptcy after its directors determine that it can no longer manage its debts.

Creditor petition: A creditor may apply to the Court to have the company declared bankrupt when the legal requirements are met.

Failure of a Division I proposal or Notice of Intention: A company may be deemed bankrupt if creditors reject its proposal, it fails to meet the terms of an accepted proposal, or it misses required filing deadlines.

No matter how the bankruptcy begins, a Licensed Insolvency Trustee is appointed to manage the process, take control of the company’s assets, and deal with creditor claims.

The Corporate Bankruptcy Process

Once a company enters bankruptcy, the Licensed Insolvency Trustee manages the process from start to finish. While every situation is different, the process usually includes the following steps:

1. Review the Company’s Financial Position

The Trustee reviews the company’s debts, assets, cash flow, tax obligations, employees, creditor claims, and any personal guarantees signed by the directors.

2. Review the Company’s Financial Affairs

The Trustee reviews the company’s records and certain transactions made before bankruptcy, including asset transfers and payments made to creditors.

3. File the Required Documents

If the company is making a voluntary assignment into bankruptcy, the Trustee prepares and files the required documents.

4. Take Control of the Company’s Assets

The company’s assets are transferred to the Trustee. This may include equipment, inventory, accounts receivable, vehicles, cash, and other business property.

5. Notify Creditors

Creditors are informed of the bankruptcy and may submit claims for the amounts they are owed.

6. Sell the Company’s Assets

The Trustee determines the best way to realize the value of the company’s assets. In most cases, the business stops operating, although it may continue briefly in some situations.

7. Distribute Available Funds

After valid claims and administration costs are reviewed, the available funds are distributed to creditors based on the legal priority rules.

8. Complete the Bankruptcy Administration

Once the assets have been dealt with and the required duties are complete, the Trustee concludes the administration of the bankruptcy.

Why Work With Campbell Saunders Ltd.?

For more than 40 years, Campbell Saunders Ltd. has helped businesses across British Columbia understand their financial options and move forward with greater clarity. Our Licensed Insolvency Trustees provide practical guidance on corporate bankruptcy, proposals, business reviews, and potential director liability.

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Corporate Bankruptcy FAQs

Can a small business file for corporate bankruptcy?

Yes. An incorporated small business can file for corporate bankruptcy if it is unable to pay its debts. The size of the company does not determine eligibility.

Can a sole proprietor file for corporate bankruptcy?

No. A sole proprietorship is not legally separate from its owner, so its business debts are generally treated as personal debts. The owner may need to consider a personal bankruptcy or consumer proposal instead.

Can a company continue operating after filing for bankruptcy?

In most cases, the company stops operating. However, a Licensed Insolvency Trustee may allow the business to continue briefly when doing so could protect or increase the value of its assets.

Can a creditor force a company into bankruptcy?

Yes. A creditor may apply to the Court to have an insolvent company declared bankrupt if the legal requirements are met.

What is the difference between a Division I proposal and corporate bankruptcy?

A Division I proposal allows a company to offer creditors a formal repayment arrangement and may allow the business to continue operating. Corporate bankruptcy usually involves closing the business, selling its assets, and distributing available funds to creditors.

What happens to the company after bankruptcy?

In most cases, the company stops operating and its assets are sold to repay creditors. The business is then wound down once the bankruptcy administration is complete.

Can directors be personally liable for company debts?

In some situations, yes. Directors may remain responsible for personal guarantees, certain tax debts, unpaid source deductions, employee wages, or other obligations that are not protected by the company’s separate legal status.

What happens to employees and creditors?

Employees may be able to submit claims for unpaid wages, vacation pay, or other amounts owed. Creditors are notified of the bankruptcy and can file claims, which are reviewed and paid according to legal priority and the funds available.

What Is Corporate Bankruptcy in BC?