If a limited company has few assets, if all of the assets are secured by a lender, or if they are subject to a large Trust claim, it may not be necessary for the company to take any formal steps.  Once the assets are seized by a creditor there is often little point in initiating any formal proceedings. A company which is no longer trading would eventually be struck from the records for the non-filing of annual corporate returns.  Formal proceedings are only necessary if the directors are trying to save the company or if assets remain for the unsecured creditors.

A Corporate Bankruptcy is primarily designed to provide a mechanism for the orderly disposition of assets and the equal distribution of the proceeds among the creditors, by a Licensed Insolvency Trustee.  If no assets remain then a corporate bankruptcy may be unnecessary.

Directors Beware

If a company fails to remit its payroll deductions, or GST/HST obligations, Canada Revenue Agency (formerly Revenue Canada) in many cases will have the right to pursue any Directors of the company for any amounts they are unable to collect from the company's assets.

Any individual who signed a "Personal Guarantee" on behalf of the company will also likely be pursued if the creditor cannot collect from the company's assets. Many landlords and suppliers will routinely expect the owners of companies to sign personal guarantees, to protect them if the company fails.

It is therefore common that the failure of a company will result in obligations for the owners and directors which may lead to personal financial problems for them.

Please contact us to help you evaluate your company's difficulties and to suggest a solution for you.

Lenders Beware

Canada Revenue Agency has a super-priority status which ranks ahead of secured lenders, and even a Bankruptcy Estate.

If a Company, or a self-employed individual, fails to remit payroll deductions or GST/HST remittances and goes out of business, Canada Revenue Agency will routinely pursue the debtors assets. Even if those assets are charged by a General Security Agreement or other form of security, they can claim priority.

They can also pursue proceeds from the sale of secured assets, after a lender has seized and sold their collateral.

Lenders should regularly inquire about the status of borrowers obligations to Canada Revenue Agency. Lenders should seek legal advice about Canada Revenue Agency’s entitlements if a borrower’s arrears appear to jeopardize their collateral.