How To File For Business Bankruptcy in Ontario

Navigating the process of filing for business bankruptcy in Ontario can be a daunting task. This comprehensive guide will walk you through the necessary steps, and provide a clear understanding of the legal implications involved.

Defining Business Bankruptcy: The Basics

Business bankruptcy is a legal process initiated to alleviate a business from its debts. This is typically considered when a company is insolvent and unable to meet financial obligations. In Ontario, business bankruptcy is legislated by the Bankruptcy and Insolvency Act.

Identifying Business Structure and Impact on Bankruptcy

Before diving into the process of filing for bankruptcy, it’s crucial to identify your business structure, as this will influence how bankruptcy proceedings are handled.

Sole Proprietorships and Partnerships

Sole proprietorships and partnerships are extensions of the individual or individuals running them, meaning the owners are personally liable for business debts. In these cases, filing for bankruptcy is akin to personal bankruptcy. If you operate a sole proprietorship or partnership, be aware that your personal assets may be at risk.

Incorporated Businesses

Contrarily, an incorporated business is a separate legal entity. The business owns its assets and debts, not the individuals who own or operate the business. Therefore, filing for business bankruptcy as the owner of a corporation may not require filing for personal bankruptcy, protecting personal assets in most cases.

When to Consider Business Bankruptcy

Business bankruptcy should be considered when:

  • The business is facing insurmountable debt.
  • There is a persistent lack of profitability, with no foreseeable prospects for improvement.
  • The business owner lacks the financial resources or energy to keep the business running.

The Role of a Licensed Insolvency Trustee (LIT)

In Canada, only a Licensed Insolvency Trustee (LIT) can file bankruptcy papers on behalf of an insolvent individual or company. They ensure transparency and equity throughout the process for all parties involved. LITs can also offer alternative solutions to bankruptcy.

Filing for Business Bankruptcy: The Process

Filing for business bankruptcy involves several steps:

  1. Meeting with a Licensed Insolvency Trustee: The business owner must consult with a LIT to discuss financial circumstances and explore potential options.
  2. Filing the paperwork: If bankruptcy is deemed the best option, the LIT will file the necessary paperwork. This will cease all collection activity and legal proceedings.
  3. Notifying creditors: The LIT will inform creditors of the bankruptcy proceedings.
  4. Liquidating assets: The LIT will oversee the sale of business assets to repay creditors.

Corporate Bankruptcy

Corporate bankruptcy is more complex due to the size and intricacies of incorporated businesses. It can be initiated either voluntarily by the directors or involuntarily by creditors petitioning the court.

Personal Liability in Business Bankruptcy

In certain situations, business owners can be personally liable for business debts, including:

  • Business contracts and agreements: If the business owner personally guarantees the company’s agreement or is a co-borrower under a business contract.
  • HST and payroll taxes: The Canada Revenue Agency (CRA) can personally assess a director of the business if unable to collect these taxes from the business.
  • Employee wages: Corporate directors may be liable for up to $2,000 per employee for unpaid wages.
  • Transfer of assets: Under section 160 of Canada’s Income Tax Act, if a transferee receives property from a tax debtor, the transferee may inherit the transferor’s tax liability.

After Filing for Business Bankruptcy

Post-bankruptcy, the business operations will cease, and the business will be closed down. The LIT will wrap up the business and close out accounts as necessary. An orderly liquidation process can provide positive outcomes for both business owners and creditors by ensuring transparency, eliminating uncertainty, and creating clear communication channels.


Filing for business bankruptcy in Ontario is a significant decision that should not be taken lightly. It is essential to consult with a Licensed Insolvency Trustee to understand all available options completely. Bankruptcy can offer a valid option to alleviate financial difficulties and satisfy creditors, but it is only one of many potential solutions to financial issues.

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