BANKRUPTING A LIMITED COMPANY: THE COMPLETE GUIDE TO THE CANADIAN CORPORATE BANKRUPTCY PROCESS

Summary

This guide provides an in-depth look at the corporate bankruptcy process in Canada. It begins by explaining how directors must meet with a trustee to assess the company's financial status and options. Key steps include determining if the business is solvent or insolvent and whether it is viable. If insolvent and no longer viable, the company may proceed with bankruptcy. The process involves appointing a trustee, filing documentation, and managing the sale of assets to pay creditors. The video concludes by emphasizing the importance of consulting a trustee to explore available options.

Takeaways

• 💼 Directors must meet with a trustee to explain the company's financial position and explore available options.
• 📉 A company is considered insolvent if it can't pay off all liabilities with its assets or fails to meet debt obligations regularly.
• 🏢 If a company is solvent and viable, directors may consider selling the business or corporate restructuring.
• 🚫 If the business is solvent but not viable, statutory liquidation could be an option to pay off liabilities and distribute remaining assets to shareholders.
• 🔄 If the company is insolvent but viable, a restructuring proposal can be made to either continue running or sell the business post-restructuring.
• ❌ If the company is insolvent and not viable, bankruptcy or receivership is the likely outcome.
• 📝 The bankruptcy process begins when the directors resolve to file an assignment in bankruptcy and appoint a designated officer to manage the process.
• 📑 The trustee prepares necessary documents, including a statement of affairs listing assets, liabilities, and creditors.
• 🔒 The trustee safeguards the company's assets, determines whether they are subject to secured creditors, and manages their sale.
• 📢 Creditors are notified of the bankruptcy, and the trustee oversees claim assessments, the first creditors' meeting, and eventual distribution to creditors.

Q & A

What is the first step in the corporate bankruptcy process for a limited company in Canada?

The first step is for the directors to meet with a trustee to explain the company's financial position and review the available options.

How does the trustee determine if a company is insolvent?

The trustee will check if the company can pay off all its liabilities by liquidating its assets and if it is paying debts regularly. If not, the company is considered insolvent.

What options are available if the company is solvent but not viable?

If the company is solvent but not viable, one option is to sell the business to another company where it could fit and become viable, or to proceed with a statutory liquidation, where the assets are liquidated, liabilities are paid, and the remaining funds are distributed to shareholders.

What restructuring options are available if the company is solvent and viable?

If the company is solvent and viable, it can undergo a corporate restructuring, which typically involves changes in processes and personnel to improve efficiency and continue operating.

What happens if the company is both insolvent and not viable?

If the company is insolvent and not viable, the options are limited, and the business may need to undergo receivership or bankruptcy since there is no market demand for its products or services.

What is the role of the designated officer in a corporate bankruptcy?

The designated officer, who is one of the directors with knowledge of the company’s affairs, signs the bankruptcy documentation and represents the company at the first meeting of creditors.

When does the actual bankruptcy of a company occur?

The bankruptcy occurs when the trustee files the required documents electronically with the Superintendent of Bankruptcy, who issues a certificate confirming the company's bankruptcy and the appointment of the trustee.

What are the trustee’s responsibilities after a company is declared bankrupt?

The trustee is responsible for dealing with the company's assets, including safeguarding, insuring, and inventorying them, and determining how to sell them (either through auction, tender sale, or retail sale).

How does the trustee handle secured creditors during the bankruptcy process?

If the assets are encumbered by secured creditors, the trustee will not deal with them unless requested by the secured creditor. Otherwise, the trustee focuses on unencumbered assets.

What happens after the trustee liquidates the company's assets?

After liquidating the assets, the trustee calls for creditor claims, assesses them, holds the first meeting of creditors, and ultimately makes a distribution to the creditors from the remaining funds.