Running a business involves making critical decisions, especially when financial difficulties arise. One such critical decision is dealing with bankruptcy. This article will explore bankruptcy and your business, providing a comprehensive guide on how to navigate this financial predicament.
Understanding Bankruptcy
Bankruptcy, in the context of business, refers to a situation where a company is unable to meet its financial obligations. This often results in the liquidation of the business’s assets to pay off creditors.
Role of a Licensed Insolvency Trustee
In such situations, it’s crucial to consult with a Licensed Insolvency Trustee (LIT). These professionals can provide expert advice and help you navigate the process of bankruptcy.
Incorporated Businesses and Bankruptcy
Incorporated businesses are separate legal entities, meaning their assets belong to the business. If such a business cannot meet its financial obligations, it can declare bankruptcy. The business’s assets are then sold to reduce liabilities.
Government Debts and Director’s Liabilities
Business owners often face three main government debts:
- Corporate income tax.
- HST.
- Payroll source deductions.
While corporate income tax is a debt owed solely by the corporation, HST and payroll source deductions are considered director’s liabilities. These debts are the personal responsibility of the directors and can be included in a consumer proposal or personal bankruptcy.
Effects of Bankruptcy
Filing for bankruptcy can have severe effects on a business. It can lead to the freezing of bank accounts, wage garnishment, and potential liens on personal property. However, filing a consumer proposal or bankruptcy immediately stops all government action, preventing further action against your assets or income.
Cost of Bankruptcy
Bankruptcy comes with a price. For an incorporated company to go bankrupt, it may cost a minimum of $15,000. Therefore, this decision should be well thought through.
Alternatives to Bankruptcy
Before deciding to bankrupt your company, it’s vital to research all available options. Alternatives to bankruptcy include debt consolidation, credit counselling, and consumer proposals.
Consultation with Experts
If your business is struggling, consult a Licensed Insolvency Trustee sooner rather than later. They can provide expert advice and review all options available to you.
Conclusion
Bankruptcy is a complex process that requires careful consideration and expert advice. While it might seem like a daunting prospect, understanding the process can help you make informed decisions about the future of your business.
For more information on bankruptcy and your business, feel free to contact us.
