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Business Bankruptcy in BC: What You Should Know
Whether you’re a sole proprietor or the owner of a corporation with multiple employees, running a business comes with its share of challenges. You might experience cash flow issues, an unexpected illness, or an unforeseen event that could cause your business to struggle financially or become insolvent.
If you can no longer pay the bills and you don’t know what to do next, it’s time to speak to a Licensed Insolvency Trustee (LIT). An LIT can assess your business finances and help determine if business Bankruptcy is the best path forward.
What is Business Bankruptcy?
Business bankruptcy is a legal process that a company (or a business owner) goes through when it can no longer pay its debts as they come due. It’s governed in Canada by the Bankruptcy and Insolvency Act (BIA) and is usually seen as a last-resort option after other solutions have been explored.
BC Business Bankruptcies
Recent statistics from the Office of the Superintendent of Bankruptcy show business and corporate Bankruptcies are on the rise in BC.1 Over twelve months, from October 31, 2022, to October 31, 2023, BC business bankruptcies increased by 66%, and corporate Bankruptcies by 123%.
Filing a business Bankruptcy is different depending on whether it is registered as a sole proprietor or a limited company. In this podcast, Derek Chase discusses business Bankruptcies and how it affects individuals in the business.
Canadian Business Bankruptcies
According to a recent media release from the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), business insolvencies in Canada have reached the highest volume in ten years. What is causing the increase in Bankruptcies and insolvencies in BC and across the country?
A few of the contributors include:
- Higher interest rates. Which makes it more expensive to borrow money and repay debt
- Reduced consumer demand. Thanks to higher interest rates, and a higher cost of living, Canadians have less money to spend on goods and services.
- Loss of COVID support. With no more government support, businesses are left on their own trying to recover from the pandemic, soaring inflation, and high-interest rates.
Who Can File For Business Bankruptcy?
In a situation where the economy is experiencing a downturn, your revenues have plummeted, and your debts are unmanageable, you might consider filing for small business Bankruptcy.
While Bankruptcy is typically seen as the last-case scenario, it might be the best path forward for you and your business. A Licensed Insolvency Trustee can recommend if Bankruptcy is your only option.
Bankruptcy Based on Business Structure
If you decide to file for Bankruptcy, how it will impact your business depends on the structure of your business.
Sole proprietorship
A sole proprietorship is a business owned by one person. If your business is structured as a sole proprietorship, you and your business are considered the same legal entity. In this case, you are personally responsible for all of the decisions related to your business, and you take on the possible risks and benefits of running your business.
If you declare Bankruptcy as a sole proprietor, it is treated as a personal Bankruptcy. This means you need to work with an LIT who will advise you of your responsibilities and duties which may include surrendering an asset or making payments into the bankruptcy. In exchange, you’re discharged from many of your unsecured debts.
If you want to continue doing business, you will have to file for a new business number with the Canadian Revenue Agency (CRA).
Partnership
A business structured as a partnership is similar to a sole proprietorship, but instead of one person, there are two or more.
If you’re in a partnership with one other person and declare Bankruptcy, the partnership will no longer exist. If you are in a partnership with more than one other person, and you or one of your partners declares Bankruptcy, the partnership can still exist.
Corporation
Businesses that are structured as corporations are considered a separate legal entity. You and your business are no longer one and the same. This means if your business needs to file for Bankruptcy, you won’t have to sell your personal assets such as your home or car. However, any assets associated with the business may be sold to pay back creditors.
If your corporation goes Bankrupt, it will cease to exist unless it can pay back all of its debts at the time of Bankruptcy.
Before starting a new corporation, you’ll have to contact the government body that governs your corporate affairs.
What Are the Main Steps in a Corporate Bankruptcy?
1. Financial Distress & Early Assessment
A corporation becomes insolvent when it:
Cannot pay its debts as they come due, or
Has liabilities exceeding the value of its assets
At this stage, directors typically:
Review cash flow and solvency
Seek advice from a Licensed Insolvency Trustee (LIT) and legal counsel
Consider alternatives such as refinancing, asset sales, or a restructuring proposal
2. Choosing the Appropriate Legal Process
The company must choose the correct insolvency route:
Common Canadian Options
Corporate Bankruptcy (BIA) – liquidation
Proposal to Creditors (BIA Proposal) – restructuring
CCAA Proceedings – restructuring for larger corporations (generally $5M+ in debt)
If bankruptcy is chosen, the corporation files an Assignment in Bankruptcy or is forced into bankruptcy by creditors.
3. Filing & Automatic Stay of Proceedings
Upon filing:
An automatic stay comes into effect
Creditors must stop collection actions, lawsuits, and enforcement
Secured creditors may be limited depending on timing and court orders
This provides immediate legal protection for the company.
4. Appointment of a Licensed Insolvency Trustee
A Licensed Insolvency Trustee (LIT) is appointed to administer the bankruptcy.
The Trustee:
Takes control of corporate assets
Notifies creditors
Reviews the company’s financial affairs
Reports to creditors and the Office of the Superintendent of Bankruptcy (OSB)
5. Asset Inventory & Investigation
The Trustee prepares:
A statement of affairs (assets and liabilities)
An inventory and valuation of company assets
A review of transactions prior to bankruptcy (preferences, transfers at undervalue)
This ensures transparency and creditor fairness.
6. Business Operations & Asset Liquidation
In most corporate bankruptcies:
Business operations cease (unless continued temporarily for asset value)
Assets are sold through auctions or negotiated sales
Contracts and leases are disclaimed where permitted
Employees are typically terminated, subject to wage priority rules.
7. Creditor Claims & Priority of Payment
Creditors file Proofs of Claim.
Funds are distributed in this general order:
Secured creditors
Preferred creditors (certain wages, source deductions, pension claims)
Unsecured creditors
Shareholders (usually receive nothing)
8. Trustee Reporting & Court Oversight
The Trustee:
Provides interim and final reports
Seeks court approval where required
Distributes funds to creditors
Unlike individuals, corporations do not receive a discharge.
9. Dissolution of the Corporation
Once administration is complete:
The corporation is effectively wound up
It may be formally dissolved under corporate law
Directors may still have exposure for certain obligations (e.g., unremitted taxes, wages)
Alternatives to Filing for Corporate Bankruptcy in BC
Depending on the financial details of your business, Bankruptcy might not be the only option.
Consumer Proposal
If your business is structured as a sole proprietorship or a partnership, you might be able to file for a Consumer Proposal.
To be eligible for a Consumer Proposal:
- You must be an individual, not a corporation
- Your debts can’t exceed $250,000 (not including mortgage debt)
In a Consumer Proposal, you work with your LIT to create an offer to your creditors to pay off a percentage of your debt, extend the time you have to pay, or both. A benefit of filing a Consumer Proposal is that you don’t have to shut down your business.
Corporate Proposal
Businesses structured as corporations might consider corporate restructuring with a Corporate Proposal, also known as a Commercial Proposal or Division 1 Proposal.
To be eligible for a Corporate Proposal:
- You must be a business or an individual
- There is no limit to the amount of debt you owe
Similar to a Consumer Proposal, you will work with an LIT to develop a corporate proposal where you offer to repay all or part of the amount owing to your creditors.
If your proposal is accepted, you are responsible for making your payments and adhering to any other conditions.
Frequently Asked Questions about Business Bankruptcy
What is business bankruptcy in Canada?
Business bankruptcy is a legal process under the Bankruptcy and Insolvency Act (BIA) that applies when a business can no longer pay its debts as they become due. A Licensed Insolvency Trustee (LIT) is appointed to manage the process, sell business assets, and distribute funds to creditors according to federal law.
Who can file for business bankruptcy?
Any insolvent business in Canada can file, including:
- Sole proprietorships
- Partnerships
- Corporations
The impact on the owner depends on the business structure and whether personal guarantees were provided.
What happens when a business declares bankruptcy?
When a business declares bankruptcy:
- A Licensed Insolvency Trustee takes control of the business’s assets
- Business assets are sold (liquidated)
- Proceeds are distributed to creditors
- The business typically stops operating
- Remaining eligible debts are discharged
Does business bankruptcy affect personal assets?
It depends on the business structure:
- Sole proprietors: Personal and business assets are not separate, so personal assets may be affected
- Corporations: Personal assets are generally protected unless the owner signed personal guarantees
- Partnerships: Liability depends on the partnership agreement and guarantees
Can I keep my business open after filing for bankruptcy?
In most cases, business bankruptcy results in the business closing. If continuing operations is a goal, alternatives such as a Division I Proposal or restructuring may be more appropriate.
What debts are included in a business bankruptcy?
Business bankruptcy can include:
Trade payables and supplier debt
Business loans and lines of credit
CRA debts (GST/HST, payroll, corporate taxes)
Lease obligations and unsecured business debt
Secured creditors may still enforce their security against assets.
What happens to CRA debt in a business bankruptcy?
Certain CRA debts (such as GST/HST or payroll deductions) can be included in business bankruptcy, but CRA may have priority claims or personal director liability depending on the circumstances. A Licensed Insolvency Trustee can explain how CRA debt is treated in your case.
What happens to employees if a business goes bankrupt?
When a business goes bankrupt:
Employees are terminated
Outstanding wages may be claimed through the Wage Earner Protection Program (WEPP)
Vacation pay and termination pay may also be eligible, subject to limits
How long does business bankruptcy take?
The timeline varies based on:
The size and complexity of the business
Number of assets and creditors
Whether disputes arise
Many business bankruptcies are completed within several months, but complex cases can take longer.
Is business bankruptcy the same as personal bankruptcy?
No.
Business bankruptcy applies to the business entity
Personal bankruptcy applies to individuals
However, sole proprietors may experience both at the same time since the business and individual are legally the same.
What are the alternatives to business bankruptcy?
Alternatives may include:
- Division I Proposal (business proposal)
- Informal debt settlements with creditors
- Selling the business or assets voluntarily
- Restructuring or refinancing
A Licensed Insolvency Trustee can assess which option is most appropriate.
Will business bankruptcy affect my credit?
If you are a sole proprietor or provided personal guarantees, bankruptcy can negatively affect your personal credit. For corporations, the impact is generally limited to the business credit profile unless personal guarantees exist.
Do I need a lawyer to file for business bankruptcy?
No. In Canada, business bankruptcy must be administered by a Licensed Insolvency Trustee, not a lawyer. The trustee handles the legal filing, creditor communication, and asset liquidation.
How much does it cost to file for business bankruptcy?
Costs vary depending on:
- Business size and assets
- Complexity of the case
- Trustee fees (regulated under federal guidelines)
In many cases, fees are paid from the sale of business assets.
How do I know if my business is insolvent?
A business is considered insolvent if:
It cannot pay debts as they come due, or its liabilities exceed the value of its assets.
A Licensed Insolvency Trustee can perform an assessment to confirm insolvency.
Should I speak to a Licensed Insolvency Trustee before closing my business?
Yes. Speaking with a Licensed Insolvency Trustee before shutting down can help you:
- Avoid personal liability
- Understand your options
- Ensure compliance with Canadian insolvency laws
Is Business Bankruptcy The Right Option?
If you’re a BC business owner and you’re contemplating whether a company Bankruptcy is the best path forward, consider speaking to a Licensed Insolvency Trustee. An LIT is the only professional in Canada authorized to administer a Bankruptcy proceeding.
An LIT can assess your business finances and determine if Bankruptcy is your only option or if alternatives are available. For a free evaluation, contact one of our qualified debt professionals at Chase & Associates at 1-866-317-8331 or reach us online.