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Jul 31, 2017

Owner's assets protected in incorporated business bankruptcy

A legal avenue for Ontario consumers or businesses to seek relief from overwhelming debt is bankruptcy. It provides immediate relief in that an automatic stay of proceedings is put into effect immediately upon filing for bankruptcy. This stops harassment and legal action by unsecured creditors. The procedures for a business bankruptcy of an unincorporated business or sole proprietorship are similar to those of personal bankruptcy because the business assets and debts are not separate from the owner's personal assets and debts.

However, an incorporated business is an independent legal entity, and this provides liability protection for the owners. In the event of bankruptcy, the business assets will be liquidated, rather than the personal assets of the owners. The exception is a debt for which the owner pledged security in the form of personal assets. The Trustee in Bankruptcy will take possession of the company assets to be sold, and the proceeds will be distributed among the creditors.

Another instance in which the owners can be held liable is when there are unpaid source deductions such as CPP, employment insurance and income tax. The same will apply for owed sales taxes (GST/HST). However, if the incorporated business cannot meet the required tax payments, it can be forced into bankruptcy, and the Canada Revenue Agency will have priority over all other creditors to company assets.

Company owners in Ontario who have been battling financial shortages need not struggle through this without help. An experienced law firm that provides advice and guidance related to business bankruptcy is available to assist. A lawyer can assess the circumstances and the severity of the problems and, if applicable, other options such as consumer proposals might be considered.

Source: thebalance.com, "Small Business Bankruptcy vs. Personal Bankruptcy", Susan Ward, Accessed on July 26, 2017

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