To Bankrupt Your Company Or Not; That Is The Question

Sunday, January 5, 2014 - 05:00

Consumer Proposals, Bankruptcy, Business Concerns


At Welker & Associates we help owners of incorporated companies deal with their debt issues.  

Should you bankrupt the company?

Many people think that if they bankrupt their corporation it will solve their debt issues. Bankrupting the corporation will only end the corporation’s legal obligation to pay its’ debts. It will not affect any personal obligations owed by the owners and directors. 

Since most operating lenders and landlords require personal guarantees, and government debts related to HST and payroll source deductions are owed jointly and severally by the directors of the corporation personally, most corporate insolvencies end up causing personal debt issues. Therefore bankrupting the company usually does little or nothing to solve the debt issues faced by the owners and directors.

As a result, unless the business has significant unencumbered assets which can be used to cover the cost of the corporate bankruptcy, our normal advice is to do nothing with respect to the corporation and instead focus on dealing with the personal debts which resulted from your involvement with the company. We feel it is more important to protect you and your personal income and assets from creditors than to worry about the corporation.

Not bankrupting the company means that the company will continue to exist and the creditors of the corporation can continue legal collection action against it. However, if the corporation is inactive and insolvent (debts>assets) it really doesn’t matter. You will have dealt with your legal obligations which arose from your involvement in the corporation by filing a consumer proposal or personal bankruptcy. The only advantage to bankrupting the corporation is that it provides a formal windup and closes the business, but it is an expensive and often unnecessary process.   

What effect will this have on my ownership?

When you file personal bankruptcy your assets vest with your trustee. This includes any shares you may own in a private company. Also, an undischarged bankrupt cannot be the director of a corporation. 

Filing a consumer proposal does not affect share ownership or your ability to act as a director.  

Book a FREE consultation with one of our licensed trustee in bankruptcy. We have offices across South Western Ontario and have flexible hours to meet your needs so you don't have to miss work.

Let us help you get a fresh financial start!