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.

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.

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.

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.