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What is commercial bankruptcy?

Commercial bankruptcy is a legal process adopted under the Bankruptcy and Insolvency Act and managed accordingly by a licensed insolvency trustee. When a company is unable to meet its financial obligations, a declaration of bankruptcy allows you to discharge your creditors and start a new business.

When should you consider commercial bankruptcy?

When a company is no longer able to meet its financial obligations or honor its commitments on time, it can declare bankruptcy.

Commercial bankruptcy is possible in the following situations:

- Business volume or sales have fallen sharply;

- Lack of liquidity or cash flow;

- Debt ratio too high;

- The debts to be repaid to creditors are growing ever larger.

A company that no longer has sufficient capital to restart its activities, i.e. whose revenues no longer cover its operating costs and expenses, or that simply wishes to put an end to its commercial activity, may consider adopting this solution. As a general rule, any company with more than $1,000 in debts is eligible for commercial bankruptcy.

The advantages of commercial bankruptcy

When a company decides to declare bankruptcy, its trustee represents it in dealings with creditors. Your trustee is with you every step of the way, handling repayments, liquidation of assets and so on. The company is therefore fully discharged.

In this sense, commercial bankruptcy offers several advantages to companies, such as

- The company no longer has any repayments to make to creditors;

- The abandonment of all creditor proceedings against the company;

- Commercial bankruptcy offers the company definitive protection against all creditor claims;

- Suspension of wage garnishments ;

- Commercial bankruptcy protects the company from seizure by creditors.

These benefits are immediate once bankruptcy is declared.

The stages of commercial bankruptcy

1. Meeting with the authorized insolvency trustee

Commercial bankruptcy is not a solution for every situation, which is why it's important to consult with a licensed insolvency trustee (also known as a trustee in bankruptcy). First, your trustee will meet with you to study your financial situation in detail and determine the best solution for your needs. In some cases, a proposal is an alternative solution.

2. Completing the documents required to file for bankruptcy

At this stage, the trustee provides the company with the list of documents required to prepare the bankruptcy file. These documents include financial statements, an inventory of assets, contracts, a statement of creditors, a list of debts, etc.

It should also be noted that in a commercial bankruptcy, all the company's assets are subject to seizure. At this stage, the trustee takes over, handling all the steps that follow.

3. Filing of documents and registration of bankruptcy

Once the documents have been signed and delivered. This signature gives effect to the assignment of the company's assets and confirms the registration of the bankruptcy petition with the Office of the Superintendent of Bankruptcy.

4.taking possession and inventory of assets

As soon as commercial bankruptcy is declared, the trustee holds the company's assets and is authorized to conduct an inventory in accordance with the measures put in place by the Office of the Superintendent of Bankruptcy.

In this sense, and with a few exceptions, the trustee has the right to freely enter the premises where the company's assets are located. With the help of a chartered appraiser or inventory manager, he or she can take stock of all the assets. The inventory is then submitted to the company's managing director.

5. Sale of assets

Putting assets up for sale is the process of converting all the company's assets into cash. Whether by private treaty, public or private tender... the trustee must consult with creditors and inspectors to decide on the method of sale.

The latter could be:

- An auction

- An estate agency for real estate

- An auction of goods

- Retail sales

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

Whichever method is chosen, the syndic is obliged to establish the costs and benefits of each transaction.

6. Distribution to receivables

Once the assignment of assets has been completed, the trustee is responsible for distributing the respective amounts to the company's creditors. Repayments are distributed in order of priority, based on an agreement between the trustee, government agencies and secured creditors.

This order, stipulated by the Bankruptcy and Insolvency Act, reimburses government services first. Next come employees, secured creditors and unsecured creditors.

7. Administering and closing the file

Once the final income statement has been prepared, the authorized insolvency administrator may deem his 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. Request for release from court

As soon as the statement is validated by the court, the trustee declares the release of the company's owners and directors.

What is the role of the Trustee in a commercial bankruptcy?

The Trustee Authorized in Insolvency is the only body authorized by the government to manage and conduct the regulated procedures of insolvent companies wishing to file for commercial bankruptcy and discharge their debts.

The main role of the trustee is to analyze the company's situation in detail and propose the most appropriate solutions. The trustee studies the company's financial situation in depth, as well as all the options open to it, before making a decision. Based on his assessment, the trustee proposes several options to the company, such as a proposal in bankruptcy, commercial bankruptcy, or corporate reorganization and restructuring.

The trustee acts as your privileged contact with your creditors, liquidating the company's assets for their benefit. He or she can also make recommendations tailored to your situation for future projects.

Business bankruptcy in Quebec

In the province of Quebec, business bankruptcy is governed by the Bankruptcy and Insolvency Act, which was drafted by the Government of Canada and applies to insolvent individuals or businesses (voluntary or involuntary).

The Act provides authorized insolvency syndicates and creditors with numerous options, and proposes solutions that are fair to both parties. The main objectives are as follows:

- Division of the bankrupt's assets among creditors.

- To give an individual or legal entity a chance to re-establish their solvency.

- Foster conviction in the Canadian financing system.

- Remove an insolvent company from bankruptcy through a proposal.