Corporate Bankruptcy Lawyer in Toronto, Ontario

In the 12-month period ending January 31, 2021, 373 corporations filed for bankruptcy in Ontario, according to the Office of the Superintendent of Bankruptcy (OSB). In January 2021 alone, 35 corporations filed, reflecting a monthly uptick from December 31 and November 27. Proposals by corporations during the same 12-month period totaled 104.

The statistics show a slight increase year over year of about 3.6% in corporate bankruptcies.

If your corporation in or around Toronto, Ontario is facing severe financial difficulties that prevent you from meeting your credit obligations, contact Matthew R. Harris Law, P.C., to examine your options. He will help you determine if you can avoid full bankruptcy by using other available tools.

Corporate Bankruptcy in Canada

The Bankruptcy and Insolvency Act (BIA) treats individuals, businesses, and corporations basically the same in terms of the options available. Individuals owing less than $250,000 can file a consumer proposal to reorganize their debts and pay them off over a set period of time.

Individuals, businesses, and corporations owing more than $250,000 can file a Division 1 Proposal to reorganize. This option can avoid director liabilities and other downfalls of bankruptcy. Alternately, businesses owing $5 million or more can reorganize under the Companies Creditors Arrangement Act (CCAA).

If financial matters are so dire that a reorganization is not viable, then full bankruptcy is the remaining option, which results in the liquidation of assets to satisfy debt as much as possible. The difference here is that individuals have assets that are protected as exempt — car, home, furnishings, and so on — but a corporate bankruptcy involves the liquidation of all assets. Also, while individuals can retain some income, a corporation must relinquish all of its income.

While individuals can emerge from bankruptcy with a discharge, corporations can never be discharged from bankruptcy unless they repay all of their creditors in full.

Qualifying for Corporate Bankruptcy

A corporation is considered insolvent if:

• It is unable to meet its obligations as they come due

• It has already ceased paying its obligations as they come due

• Its assets, at fair market valuation, are insufficient to meet all obligations

As mentioned above, a financially struggling corporation can seek to file a proposal to consolidate and pay off all creditors at reduced values, which the creditors have the right to reject or accept. The corporation could also voluntarily opt to file for liquidation under the BIA, or it could be forced to do so by its creditors.

Additionally, if the corporation has been paying creditors under a Division 1 or another proposal and ceases making payments, it can be plunged into bankruptcy involuntarily. Matthew can assist with all of the aforementioned, including assigning a company into bankruptcy (voluntarily or involuntarily), or advice on the right path.

The Corporate Bankruptcy Process

As stated above, the process for corporate bankruptcy is virtually the same as that for an individual or small business. The key figure in any proposal or bankruptcy is known as the Licensed Insolvency Trustee (LIT), who is empowered as an officer of the court by the Office of the Superintendent of Bankruptcy (OSB).

The LIT’s responsibilities are to receive and administer proposals and bankruptcies, protect the rights of creditors, investigate the affairs of the debtor, and ensure the rights of the debtor are not abused.

The path to filing for corporate bankruptcy involves these steps:

• Find and meet with a Licensed Insolvency Trustee

• File the necessary bankruptcy papers with the LIT, who will advise creditors of your action

• Turn over corporate assets and management of day-to-day operations to the LIT

• The LIT will then oversee the sale of corporate assets and distribute the proceeds to creditors

• The LIT will also pay employees under terms of the Wage Earner Protection Program Act (WEPP)

• The corporation will remain in bankruptcy and not be discharged unless all debts are paid in full

Hierarchy of Creditors &
Distribution of Proceeds

Secured creditors who retain rights to the assets they financed have priority over unsecured creditors. In fact, in the case of secured creditor claims, a receiver will often be appointed to conduct liquidation of the assets. The LIT will oversee the sale or auction on behalf of unsecured creditors.

Under the terms of the BIA, unpaid and unsecured creditors who have supplied goods to the debtor have a right to repossess the goods if they make a written demand within 15 days of the date of bankruptcy, provided the goods are still available and in their original condition.

The BIA establishes a set hierarchy of who gets paid and in what order. Proceeds from bankruptcy will be distributed in this order:

• Administrative costs

• OSB levy

• Municipal taxes for the two years preceding the bankruptcy

• Overdue rent for three months prior to the filing

• Cost of asset seizure for creditors’ seizures already underway prior to bankruptcy

• All other claims

Understand Your Options

As drastic as bankruptcy can be to a corporation in Canada, you should explore other options before going down the path of liquidation. It may be possible for you to file a Division 1 proposal or seek reorganization under the CCAA.

It’s best to seek legal advice with a bankruptcy lawyer as soon as finances start to turn south, but especially if you’re at the point of considering bankruptcy. It's best to meet with a lawyer to review all contracts and to avoid potential personal liability.