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May 24, 2017

The effect of business bankruptcy

When an Ontario business becomes bankrupt, it means that it has more than $1,000 in debts and it cannot pay the debts -- not even if all the business assets are sold. Bankruptcy can be the choice of the business owner, or it might follow the refusal of creditors to accept proposals. Another, more rare situation arises when creditors petition the court to declare a business bankrupt.

The business structure will largely determine the impact of bankruptcy. If the business is a partnership or a sole proprietorship, a bankruptcy filing will automatically also include a personal bankruptcy in which the owner's personal property, such as a home and car, could be sold to settle business debts. It will also be recorded on the credit report of the business owner.

However, if the business is structured as a corporation, the personal assets of an owner will only be at risk in certain circumstances. These include situations in which a business loan was under the personal guarantee of the bankrupt owner, or when business taxes are unpaid -- in which case the directors of the corporation will be personally affected. It might include unpaid employee tax deductions and/or Harmonized Sales Tax.

When a business owner in Ontario is experiencing financial difficulties and overwhelming business debts, it might be appropriate to consult with a lawyer who is experienced in dealing with business bankruptcy matters. With the support and guidance of a legal advisor, the available options can be explored, allowing the business owner to make informed decisions and act strategically. The lawyer can also explain the impact a business bankruptcy will have on the owner.

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