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What is Commercial Bankruptcy?

The commercial bankruptcy is a legal process adopted under the Bankruptcy and Insolvency Act and managed by a Licensed Insolvency Trustee. When a company is unable to meet its financial obligations, filing for bankruptcy allows you to be released from your creditors and potentially embark on a new business venture.

When Should Commercial Bankruptcy Be Considered?

When a business is no longer able to meet its financial obligations or honor its commitments by their due dates, it may declare corporate bankruptcy.

Commercial bankruptcy may be considered in the following situations:

· A significant decrease in business volume or turnover;

· Insufficient liquidity or cash flow;

· An excessively high debt ratio;

· Debts owed to creditors are becoming increasingly substantial.

A business that no longer possesses sufficient capital to restart its operations—meaning its revenues no longer cover its expenses or operating costs—or one that simply wishes to cease its commercial activity, may consider adopting this solution. As a general rule, any business with over $1000 in debt is eligible for commercial bankruptcy.

Advantages of Commercial Bankruptcy

When a business decides to declare bankruptcy, its trustee represents it before the creditors. Your trustee guides you through all stages of the process, managing repayments, asset liquidation, and other related matters. Consequently, the business is fully discharged from its debts.

In this regard, commercial bankruptcy offers several advantages to businesses, including:

· The business is no longer required to make repayments to creditors;

· All legal proceedings by creditors against the business are ceased;

· Commercial bankruptcy provides definitive protection to the business against all creditor lawsuits;

· Wage garnishments are suspended;

· Commercial bankruptcy protects the business from potential asset seizures initiated by creditors.

These benefits take effect immediately once bankruptcy is declared.

Steps in a Commercial Bankruptcy

1. Meeting with the Licensed Insolvency Trustee

Commercial bankruptcy is not a suitable solution for all situations, highlighting the necessity and importance of consulting with a Licensed Insolvency Trustee (also known as a bankruptcy trustee). Initially, your trustee will meet with you to thoroughly review your financial situation and determine the best solution for your specific needs. In some cases, a proposal to creditors is an alternative solution.

2. Completing the Required Documents for Bankruptcy

At this stage, the trustee provides the business with a list of documents required to prepare the bankruptcy file. These documents include financial statements, asset inventory, contracts, a statement of creditors, a list of debts, and so on.

It is also important to note that in a commercial bankruptcy, all company assets are subject to seizure. This stage marks the trustee's assumption of control, as they will manage all subsequent steps.

3. Filing of Documents and Bankruptcy Registration

Once the documents are signed and submitted, this signature formalizes the assignment of the company's assets and confirms the registration of the bankruptcy declaration with the Office of the Superintendent of Bankruptcy.

4. Taking Possession of Assets and Inventorying Assets

As soon as commercial bankruptcy is declared, the trustee takes possession of the company's assets and is authorized to conduct an inventory in accordance with the procedures established by the Office of the Superintendent of Bankruptcy.

In this regard, and with a few exceptions, the trustee has the right to freely access the premises where the company's assets are located. With the assistance of a certified appraiser or an inventory manager, the trustee can count all assets. The inventory is then submitted to the company's principal administrator.

5. Sale of Assets

The sale of assets is the process of converting all company property into cash. Whether through a private sale, a public or private tender, the trustee must consult with creditors and inspectors to decide on the appropriate sales method.

This could include:

· An auction

· A real estate agency for real estate properties

· An asset auction

· A retail sale

· A sale of rights in the case of professional patents, telephone numbers, etc.

Regardless of the method chosen by the trustee, they are required to determine the costs and benefits of each transaction.

6. Distribution to Creditors

Once the asset realization is complete, the trustee is responsible for distributing the respective amounts to the company's creditors. The distribution of repayments follows a priority order, established through an agreement between the trustee, government agencies, and secured creditors.

This order, stipulated by the Bankruptcy and Insolvency Act, prioritizes repayment to government services. Following this are employees, secured creditors, and then unsecured creditors.

7. Administration and File Closure

After the final statement of receipts and disbursements has been prepared, the Licensed Insolvency Trustee will deem their administration complete and will then submit a statement to the inspectors of the Office of the Superintendent of Bankruptcy and to the court for taxation.

8. Application for Discharge from the Court

Once the validated statement is approved by the court, the trustee declares the discharge of the company's owners and directors.

What is the role of a Licensed Insolvency Trustee (LIT) in a commercial bankruptcy?

The Licensed Insolvency Trustee is the only entity authorized by the government to manage and conduct the regulated procedures for insolvent businesses that wish to declare commercial bankruptcy and be relieved of their debts.

The trustee's primary role is to thoroughly analyze the company's situation and propose the most suitable solutions. The trustee conducts an in-depth study of the company's financial state and all available options before making a recommendation. Based on this assessment, the trustee offers the company several options, such as a proposal, commercial bankruptcy, or corporate recovery and restructuring.

The trustee acts as your primary contact with your creditors and is responsible for liquidating the company's assets for their benefit. They can also provide recommendations tailored to your situation for future projects.

Corporate Bankruptcy in Quebec

In the province of Quebec, corporate bankruptcy is governed by the Bankruptcy and Insolvency Act, which was drafted by the Government of Canada and applies to insolvent individuals or businesses (whether voluntary or not).

This Act provides numerous options for Licensed Insolvency Trustees as well as for creditors, and offers equitable solutions for both parties. Its main objectives are as follows:

· To divide the bankrupt's assets among creditors.

· To provide an opportunity for an individual or a legal entity to re-establish their solvency.

· To foster confidence in the Canadian financial system.

· To prevent an insolvent business from bankruptcy through a proposal.