519-646-2222Small Business Solutions
Check out our small business solutions for debt problems. The great lockdown has caused financial challenges for most small businesses. Some professional services have been able to continue to operate using remote access to clients and data. Restaurants have also been able to continue operations, albeit scaled down to physically distanced take-away and delivery service.
Most other businesses have had to either cease operations altogether or provide very limited services. Most small retailers have been forced to close altogether a few have been able to provide a curbside delivery service for their products. The vast majority of businesses have been chewing up cash reserves and borrowed money to make bill payments. Government programs have provided limited benefit to small business owners. Deferring payments does not eliminate them. Pushing payments forward to a time when businesses will be restarting with restricted cash flow and increased taxes is not helpful.
Practical small business solutions include modelling cash flow projections, prioritizing payments to critical suppliers, proposing alternative payment arrangements, restructuring debt, forecasting business trends, closing redundant or costly operations, and seeking alternative financing.
Licensed Insolvency Trustees can be a tremendous resource, we understand distressed companies and have helped many to turn around or sell off redundant divisions. With an insolvency filing, commercial leases can be disclaimed, tax and commercial debts can be eliminated or compromised. A small business owner operating as a sole proprietor, partner or a closely held corporate entity may benefit from a either a proposal or bankruptcy.
While being incorporated provides some limited liability protection this rarely extends to protection from creditors. Most small corporations applying for financing will require a personal guarantee from the company’s principals. When the company can no longer pay its debts, creditors will usually pick the pockets of the guarantor.
Because business owners are usually on the hook for corporate debts it sometimes makes sense to file joint proposals. An individual can file a joint proposal with a corporation – although not always advisable this can be a good solution to package up the problems faced by the company and its principal(s).
A bankrupt individual can continue to work in his or her chosen profession, self-employed or otherwise, and will be encouraged to do so. While the Bankruptcy and Insolvency Act requires a bankrupt individual to resign as a director, this cannot happen if the bankrupt is the sole director of a corporation. Accordingly, the director may continue to receive correspondence on behalf of the corporation even though her or his personal liability for the obligations will be discharged in the bankruptcy.
Bankrupting a Corporation:
A bankruptcy for a small closely held corporation with no assets is costly and unnecessary. Corporate bankruptcies always require creditor meetings and court attendance. The corporation can be left in abeyance and the principal(s) of the company may resolve their personal liabilities that arose during the operation of the business. The process of dissolving a corporation is costly and cumbersome. However, failure to file corporate returns will eventually result in the dissolution of the corporation by the ministry.
A corporation not filing its tax returns may receive a request from the Ministry of Finance (MOF) to do so. Failure to respond, after notice, may result in dissolution and the cancellation of the corporation’s certificate of incorporation (charter.) The cancellation of the charter has serious implications, including:
- the forfeiture to the Crown of any real or personal property of the corporation at the date of its dissolution,
- the lapse of corporate limited liability and insurance coverage, and
- the inability to apply tax losses.
If the corporation has assets of value it may make sense to file a bankruptcy to ensure that sale proceeds are fairly and properly proportioned amongst the creditors.
Individual Bankruptcy:
Individual bankruptcy filings can be very helpful tools for small business owners who have far more debt than they can reasonably pay. This includes directors/shareholders of corporations as well as sole proprietors. The relief provided under an individual bankruptcy filing will extend to corporate debts that the individual is jointly and severely liable for.
Division One Proposal:
Division one proposals are for corporations and for individuals who have debts totalling more than $250,000, excluding a mortgage on a principal residence. As with division two proposals, see below, these may be filed jointly. However, unlike Division Two, Proposals filed under this division may be filed jointly between individuals and corporations when the debts significantly overlap.
Division Two Proposal:
Corporations cannot take advantage of the summary provisions of division two of the Act. This type of proposal is only available for individuals. Two or more debtors may make a joint proposal under this section of the Act, but the total value of their debts must be less than $250,000 each, not including a mortgage on a principal residence. When filing jointly it is important that there is a financial relationship between the parties, even if only vis the debts and obligations.