When a company is unable to meet its financial obligations, commercial bankruptcy is a legal process that allows the company to free itself from debt.
How Does Commercial Bankruptcy Work?
First, a company must meet with a Licensed Insolvency Trustee (LIT) to oversee the legal process under the Bankruptcy and Insolvency Act (BIA). The trustee oversees the orderly liquidation of the company’s assets for the creditors’ benefit.
Once the liquidation of the company is complete, it will become inactive and its charter will be cancelled by the Régistre des entreprises du Québec. If a company wishes to continue conducting business, it should consider a proposal as a solution.
How Does Commercial Bankruptcy Protect a Company?
The filing of a commercial bankruptcy has several immediate effects:
- The bankruptcy ends legal actions taken by creditors.
- The bankruptcy prevents further filing of proceedings against the company.
- Bankruptcy can cease seizures brought on goods by some creditors.
What is the Role of the Trustee in a Commercial Bankruptcy?
The primary role of the Trustee is to analyze the situation of the company and to offer realistic solutions for the given circumstances. Commercial bankruptcy should be a last resort. Before proceeding with this option, the trustee will consider all other possibilities for the company. If either a financial reorganization or proposal is possible, the trustee will suggest these options.
What are the Requirements for a Commercial Bankruptcy?
In theory, any insolvent company having more than $1,000 of debts is eligible to declare bankruptcy. However, in practice, it is rare that bankruptcy is the solution recommended by the trustee when the debts are minimal.
Where to Start?
If the financial situation of your business worries you, do not hesitate to contact us so we can help you as soon as possible.
