There may be other considerations such as personal guarantees, director liabilities, taxation issues, landlord/tenant issues, commercial liens legislation and other provincial and federal legislation impacting your situation in a business insolvency.
Formal solutions may include a proposal to creditors, (secured and unsecured) a re-structuring plan under the Companies Creditors Arrangement Act, (if debt exceeds five million dollars) or bankruptcy.
The commercial proposal (Division 1) process is administered by the provisions of the Bankruptcy & Insolvency Act. A proposal generally requires that you are offering your creditors more than the amount they would have received if the corporation (or you) had declared bankruptcy. In a proposal, an individual is not required to give up non-exempt assets as you do in a bankruptcy.
A business proposal is generally expected to be better for the creditors than in a bankruptcy and in most cases, allow the business to continue, maintain employees, leases, contracts, etc .
The trustee is paid from the proceeds in the proposal or as contracted between the debtor and creditors.
When a proposal is offered to the creditors, they will vote on whether to accept or reject the offer. If a majority of creditors (based on number of creditors voting and two thirds in dollar value) accept the terms then you will have a binding contract with all of the unsecured creditors.
There is a Stay of Proceedings against all creditors from the time that the proposal is filed to prevent any one creditor from taking legal action until the proposal has been dealt with.
As with a proposal there is a Stay of Proceedings against all creditors that stops any collection action after the date of filing. Bankruptcy is a last alternative if the business cannot meet payment obligations and a proposal is not viable.
During the bankruptcy of an individual operating a sole proprietorship you will be required to provide full financial disclosure to the trustee, attend financial counseling sessions, provide monthly income and expense information and assist the trustee in realization of any assets that may not be exempt. You are allowed to keep certain assets (exempt assets) that are specified under the Enforcement of Money Judgments Act of Saskatchewan and the Saskatchewan Farm Security Act.
During the bankruptcy of a corporation or registered partnership it has no exemptions and cannot be discharged from bankruptcy. The business operations cease and the assets of the business are liquidated for benefit of the unsecured creditors (subject to rights of secured creditors). In some cases, the trustee will operate the business for a short period of time in order to complete work in progress and the business may be sold as a going concern. If a business is determined to be viable, it may be preferential to file a commercial proposal to creditors. There may be other considerations such as personal guarantees, director liabilities, landlord/tenant issues, commercial liens legislation and other provincial and federal legislation that may impact a company’s situation.
Company Creditor Arrangement Act
This legislation is intended where there is in excess of five million dollars owing to the creditors. This process is controlled by court. The court will appoint a monitor in these situations (usually a licensed insolvency trustee) and will grant a stay of Proceedings that provides the debtor company the opportunity to re-structure its business affairs with the input of creditors under the trustees’ guidance and the courts approval. In certain situations the court may also appoint an interim receiver to safeguard the assets of the business while re-structuring is carried out. These files are usually highly complex. Prior to implementing any re-structuring processes, we would encourage you to contact our office to obtain additional information relevant to your circumstances.