Corporate Bankruptcy vs Personal Bankruptcy

Canadian Corporate Bankruptcy vs Personal Bankruptcy: What’s the difference?

Quite often as a Licensed Insolvency Trustee and a Chartered Professional Account we deal with business and their owners who are experiencing financial difficulties. They are considering both corporate bankruptcy vs personal bankruptcy.  At times both the business and the individual business owner needs to both deal with their debts.  However, both the corporation and the owners of the company are separate legal entities and have different legal responsibilities.

The question that often arises from owners, directors, and shareholders of small and medium corporations is:

“Should I declare a business or corporate bankruptcy, personal bankruptcy or both?”

Business owners need to understand the separation between the corporate business and the individual.   Certainly this is especially true in situations where personal and business debts and assets have become entwined.

Limited Company vs Sole Proprietorship Bankruptcy

What is the difference between owing a business vs owing shares of a company?.  Canadian law is designed that a corporation (also called a limited company) is considered a separate “person”.   A corporation is a separate individual for insolvency purposes. It can own its own assets and owe its own debts.  A corporation is separate from the person/people that own it legally. (shareholders).

However, many people who operate a “business” are operating as a “sole-proprietor” and do not own a corporation.  For tax and insolvency purposes, a sole proprietor is the business.  They are one in the same.  If a person is a sole proprietor and experiencing debt issues, then they have to consider personal bankruptcy or a consumer proposal.

Sole Proprietor

If you are a sole proprietorship, then your personal assets and personal debts cannot be separated from those of the business. If you are a sole proprietor or partnership, and have business  debts, then you also personally have debt. In these situations, when you are considering a business bankruptcy, it is the same thing as a personal bankruptcy.

Limited Company

In Canada, a limited company is a separate person or a separate legal entity under the law.

In Canada, both individual and corporation have financial options when insolvent. Both can declare bankruptcy or enter into a debt repayment plan to creditors by way of a Proposal.   If a company files a restructuring Proposal, the hope is that the company will continue to operate. A Proposal can allow companies to shed some debt, cancel contract, or other financial hindrances all in one process to become financially stable.   In bankruptcy the company will stop operating immediately and the assets are sold for the benefit of the creditors.

Corporate assets and debts are separate and distinct from the shareholders’ own personals assets.  A company is a separate legal entity.

The first step when considering a proposal is the potential future of business operations, its current debts and assets. An additional consideration for Directors/shareholders is potential exposure to personal guarantees of the company debts.

Creditors accept or reject the proposal way of a vote.  The creditors must agree the restructuring process.  Creditors will generally agree to a proposal to allow the company to continue, as they will get more return under a proposal vs. corporate bankruptcy

What if the Company cannot continue?

If the company is not viable or the creditors do not agree to the restructuring plan, it may be necessary to go through a formal corporate bankruptcy process. A formal corporate bankruptcy only takes place if there is sufficient assets available for distribution to the unsecured creditors

Business Advice

Our business team as C.E. Craig & Associates Inc have helped business and people eliminate their debts for over 20 years.  Our experience and business advice has helped business shed debt and become viable. is here to help you make that decision and walk you through the process.  We understand how difficult the decision to file bankruptcy or to consider a business proposal. But sometimes the best option for businesses in financial trouble is to reach out before its too late.

Let us guide you through the process, so we can help your company get the best possible outcome. We’ve compiled a list of our most frequently asked questions to help give you the answers you need. Our business team is available by phone or email if you have additional questions or if you need to discuss your situation.

Contact US

For business advice call Colleen Craig at 250-386-8778 or 1-888-815-5050.  As a Chartered Professional Accountant and Licensed Insolvency Trustee, Colleen and her team can help with all business insolvency issues.

Where to Turn for Accurate Advice?

There are many who will provide debt advice to consumers and business, so it is so important to seek out a reliable and accurate information.  If you are ever unsure where to turn for accurate information, best to rely on the Canadian Government recommendations.

https://www.canada.ca/en/services/finance/bankruptcy.html.

The Office of the Superintendent of Bankruptcy provides detailed information to Canadians seeking debt advice.  Their site provides information about the Canadian insolvency system and how to find a local Licensed Insolvency Trustee.  LIT’s are the only professionals licensed in Canada to offer bankruptcy or consumer proposal services.

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