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Jul 24, 2017

Business and commercial bankruptcy: Other options exist

There are many different reasons Ontario businesses experience financial difficulties. Owners may not have enough knowledge of business and commercial bankruptcy to make informed decisions. However, there are alternatives to consider that might bring the necessary financial relief to save a business.

One option is to make proposals to creditors -- either formal or informal, depending on the number of creditors. Proposals can include offers of lower installments over an extended period or even a negotiated reduction in the owed amounts. If a business seeks to make a formal proposal under the Bankruptcy and Insolvency Act, it will be necessary to contact the bankruptcy court and involve a court-appointed trustee. Upon acceptance of a formal proposal by a minimum percentage of creditors, it must be presented to the bankruptcy court for approval. If proposals are rejected, bankruptcy may follow.

Another option is to allow secured creditors to sell the company. If loan payments to secured creditors fail, they can give the business owner 10 days' notice of intention to appoint a receiver to begin the process of selling company assets to recover unpaid amounts and prevent further losses. The company owner may be allowed to buy back goods at an auction by outbidding competitors. A business owner in financial trouble can even propose receivership to secured creditors if he or she sees no other way out.

A Division 1 Proposal is an option for a business without a limit on its outstanding loans. A trustee acts as the facilitator in negotiating partial payments to be settled by a specific time or over an extended period. At least half the creditors owed two-thirds of the debt must agree to this proposal to make it valid. Ontario business owners will want to be sure they make informed choices at this difficult time. The logical step might be to consult with an experienced business and commercial bankruptcy lawyer who can explain the legalities along with the pros and cons of each option before taking steps that will affect his or her future.

Source: FindLaw Canada, "Alternatives to business bankruptcy", Lavinia Latham, Accessed on July 15, 2017