519-646-2222Resign as a director
When you make an assignment into bankruptcy you must resign as a director of any incorporation in which you have an interest. Interestingly you may retain your shares, so you can own the corporation but you cannot be a director. Section 284 (5) of the Corporations Act of Ontario provides: “No undischarged bankrupt shall be a director, and, if a director becomes a bankrupt, he or she thereupon ceases to be a director. R.S.O. 1990, c. C.38, s. 286 (5).”
If the business of the corporation is continuing, for small closely held companies, it may be convenient to have a family member hold the position of director until you are discharged from bankruptcy. The director would then resign and you could be reinstated.
This is a fussy detail for small businesses that have few or no assets and no liquid value but a necessary step nonetheless. Sometimes it is simply easier to continue the business as a proprietorship and re-incorporate later, if it makes sense. At other times the business may involve partners who want to continue developing the business.
A director must also be a share holder, so you may have to sell some of your shares, at least as a paper transaction to your family member. Whatever you decide, ensure you do it properly and with the guidance of your trustee who must be fully informed.
The resignation must be registered in accordance with the Corporations Information Act. For Ontario Corporations you can do this at Service Ontario, either in person or online. The same holds true for Canadian Corporations except they must be dealt with through Service Canada.
There is of course no such requirement if you file a proposal.