Corporate Bankruptcy in British Columbia
Corporate bankruptcy is usually considered a last resort for a business once other types of corporate restructuring have either been attempted or are no longer considered to be a viable solution. When filing corporate bankruptcy in British Columbia, the directors of the company assign the company into bankruptcy with a licensed bankruptcy trustee. The trustee normally disposes of the assets in an orderly fashion and distributes the funds to creditors in the order of priority as set out in the Bankruptcy and Insolvency Act and other relevant legislation.
Filing corporate bankruptcy in B.C.
A company may become bankrupt either:
- Voluntarily - when a corporate bankruptcy assignment is filed by the directors of the company, or
- Through a court petition by an unpaid creditor;
- As a result of a Corporate Proposal being refused by creditors; or,
- Through the failure to comply with the terms of a Corporate Proposal.
When a corporate bankruptcy is appropriate
Assigning a company into bankruptcy may be appropriate in the following circumstances:
- The company has no means to make a proposal to creditors, such as when the business is shut down or cannot continue operation even with some compromise or deferral of its debts through a Corporate Proposal or restructuring.
- There is a need for an orderly liquidation of assets to be carried out unhindered by legal actions and asset seizures by individual creditors. Having this protection will normally result in a greater net realization on the assets. A level of credibility and trust will also be added to the process by having it conducted by an independent third party (i.e. the bankruptcy trustee).
(Note: Under some circumstances, it may be more beneficial to carry out an orderly liquidation under a Corporate Proposal rather than a corporate bankruptcy).
- There is a need to reorder creditor priorities such as GST or landlord claims. In British Columbia, a corporate bankruptcy will stop a rent distraint, such as when assets on the leased premises have been seizure by the landlord for non-payment of rent.