In response to the 2020 pandemic, the Canadian government set up the Canadian Emergency Business Account (CEBA) as a financial lifeline for businesses struggling with the crisis. Over 900,000 Canadian companies benefited from this interest-free support.
A few years later, statistics reveal that only 13% of borrowers had successfully repaid their CEBA loan, underscoring the difficulties faced by businesses.
Originally scheduled for December 31, 2022, the repayment deadline has been extended twice, proving that repaying this loan is a headache for many entrepreneurs.
With the new deadline approaching on January 18, 2024, companies need to be discerning about their financial obligations and weigh up their options.
Option 1: Repaying before January 18, 2024
The first and most direct option is to repay the outstanding balance of the loan (excluding the amount that can be written off) before January 18th, 2024.
For those who are able to make such an early repayment, the advantage lies in retaining a subsidized portion that can be written off.
If your business borrowed less than $40,000, an amount equivalent to 25% can be written off. For amounts over $40,000, the amount written off is 50%. Thus, a company having borrowed $60,000 can obtain a write-off of $20,000.
Of course, this first option is not within the reach of all businesses, especially those with no room for manoeuvre in their cash flow.
Option 2: Negotiate a personalized repayment plan
Failure to repay $40,000 by the new due date will result in the loss of the subsidy. Interest will then be charged on your outstanding balance.
Engaging with your financial institution is key – discussions on refinancing or debt restructuring may offer a lifeline for businesses struggling to meet the stringent program conditions.
Option 3: Business Proposal
When the timeframe for repayment becomes unfeasible, it’s crucial to consider alternative avenues.
One option to explore is the Business Proposal, which opens the door to negotiating a tailor-made repayment plan with all creditors. This provides a viable alternative to bankruptcy for a company wishing to continue its operations. Seeking guidance from Licensed Insolvency Trustees (LIT) is essential for navigating the intricacies of CEBA repayment.
Option 4: Commercial Bankruptcy
The option of filing for Commercial Bankruptcy remains an alternative of last resort.However, for some businesses unable to conquer their indebtedness, it may prove to be the most advantageous option.
Frequently Asked Questions
Here are the key points to bear in mind when answering the most frequently asked questions about handling CUEC in the event of insolvency:
Are shareholders personally liable for the debt?
Shareholders are not personally liable for CEBA loans; they are federally guaranteed, which means that the federal government provides a guarantee or assurance to the financial institutions that issue these loans. This guarantee implies that if a borrower defaults on the loan and is unable to repay, the federal government steps in to cover the loss.
What is the nature of the debt in the event of insolvency?
The CUEC loan is unsecured and is therefore treated as an ordinary unsecured debt in the event of insolvency. The claim will be treated in the same way as other unsecured debts (such as credit card loans and personal loans).
Can the company simply be dissolved?
If a company is insolvent, due to the CEBA for example, it cannot be dissolved. It can cease its activities, but it cannot be legally dissolved. The company’s filing for bankruptcy resolves this impasse.
Bankruptcy ensures fair treatment of stakeholders, provides a conclusive resolution, and protects the company’s actions from intense scrutiny by creditors during liquidation, offering a structured and regulated resolution to financial challenges.
Swiftly addressing questions and concerns and seeking professional advice can provide clarity and chart a strategic course forward.
Our dedicated team of licensed insolvency trustees is available to guide businesses through these challenging times, ensuring that financial health remains a top priority.
