Area of Law: Credit, Debt and Bankruptcy
Answer Number: 0277
Voluntary business bankruptcyRegion: Ontario Answer Number: 0277
When can a business go bankrupt?
A business can choose to become bankrupt when it owes over $1,000 and is insolvent. A business is insolvent when it is unable to make payments on its debts as they become due, or if it would be unable to pay off its debts even if the business assets were sold.
How can a business go bankrupt?
A business can go bankrupt in one of three ways. First, a business can voluntarily declare bankruptcy. This is the most common event. Second, a business will become bankrupt if it makes a proposal to its creditors which is not accepted by them. Third, the creditors of a business can sometimes push the business into bankruptcy by filing a petition with the court. Petitions are very rare.
Voluntary business bankruptcy
When a business voluntarily declares bankruptcy, it is generally called a Voluntary Assignment, or Assignment in Bankruptcy. According to the Office of the Superintendent of Bankruptcy Canada, this is defined as when “a debtor voluntarily assigns all of his or her property to a licensed Insolvency Trustee so it can be sold or used to pay a debt.”
In any business bankruptcy a Licensed Insolvency Trustee (LIT) will handle the sale of the business assets and the distribution of proceeds to creditors. However, the assistance of a bankruptcy lawyer is usually required. The situation should also be reviewed with a lawyer before the LIT is engaged.
Bankruptcy is a complicated procedure. Make sure you consult a lawyer or an accountant for specific legal and financial advice before choosing how to proceed with a business bankruptcy.
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