Small Business Bankruptcy in Nova Scotia
Dealing With Canadian Business Debt
About 10% of the insolvencies filed in Nova Scotia are a type of business bankruptcy.
Filing bankruptcy is a popular method for small businesses struggling with debt to shut down their business operations.
Hiring a Licensed Insolvency Trustee to handle the corporation bankruptcy file will ensure that everything is done in a transparent manner.
However, there are certain issues and concerns arising from declaring a company bankruptcy.
The type of business you operate will have a major impact on your decision to go bankrupt; depending on your business structure, a business bankruptcy might be the same as a personal bankruptcy.
Before you determine if bankruptcy is right for you, it is important that you meet with an insolvency expert in your area to determine how filing bankruptcy will impact you.
Filing Business Bankruptcy
A business bankruptcy filing is often more involved and complex than a personal bankruptcy due to the creditors you have and the structure of the business.
Due to the complexity of these files, the cost of your bankruptcy filing will likely be higher and take longer.
In order to go bankrupt, you need to work with a Licensed Insolvency Trustee who has knowledge with business bankruptcies and experience helping small businesses that are insolvent.
The Small Business Structure Will Impact Your Companies’ Bankruptcy
Depending on the structure of your small corporation, you might have to file personal bankruptcy to clear your business debts.
A small business that is structured as a sole proprietorship or partnership is not legally separate from the person that operates the company.
This is why you need to file personal bankruptcy if your business is structured this way.
However, if your business is an incorporated company then the business has its own debts, assets and liabilities.
This separates the small business from the person operating the business.
In this case, the business can file business bankruptcy without personally impacting the business’s operators.
What Happens When My Business Goes Bankrupt?
Once you have filed a company bankruptcy your trustee will seize certain assets of your incorporated business which will be held in trust.
In most cases, the trustee will then sell the assets and distribute the funds to the creditors owed money by the business.
In a small business bankruptcy, certain creditors might be in a privileged class which means they receive preference in the distribution of the business’ assets.
Am I Personally Liable for Small Business Debts?
Debtors will be personally liable for business debts in a sole proprietorship or a partnership; as the business and the operator are not legally separate, business debts and personal debts are tied together in this business structure.
Business owners who have a partnership or sole proprietorship must file personal bankruptcy in order to clear business debts.
Corporation owners that have personally guaranteed business debt can include this debt in their corporation bankruptcy, although your business creditors will then come after you personally for such debt.
What if my Small Business Makes Money?
For small corporation owners that are operating a profitable company that is facing temporary money problems might want to discuss bankruptcy alternatives with their trustee.
Making a business proposal can help you restructure your business liabilities and save your business.
Can I Continue to Operate my Business?
Many people considering corporate bankruptcy in Nova Scotia wonder if they can continue to operate their company.
Fortunately, the simple answer to this is yes, a bankrupt business can continue operating.
However, there are some special considerations for bankrupt business owners.
A person who has a bankrupt business must resign as director or continue as a sole proprietor.
Can I Keep My “Tools of the Trade”?
The bankruptcy laws provide an exemption on assets that can be seized.
This means that you can keep your tools of the trade and equipment necessary to operate your company.
In Ontario, the bankruptcy exemption for the tools of the trade is $11,300.
Business owners with equipment over this value must pay the excess to keep the equipment.
Can I Include Business Debt Owed to the Canada Revenue Agency?
In most cases, a company owner can include debt owed to the CRA in their company’s bankruptcy.
Are There Alternatives to Business Insolvency in Nova Scotia?
Depending on your situation there could be several viable bankruptcy alternatives.
The most common alternative to bankruptcy is to file a proposal to your creditors.
During a proposal you will make a plan with your creditors to repay a portion of the debt you owe.