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 Insolvency
of Corporation
Please refer to the list of documents and information
below to be brought to your first meeting with the trustee.
Insolvency of Corporation
A corporation becomes insolvent when it reaches a stage where
the debts of the corporation are no longer being paid on the terms
agreed upon with the suppliers of the goods or services. It is not
uncommon for a corporation to be insolvent for an extended period
of time before the corporation files an assignment in bankruptcy,
or make a proposal to its creditors.
Meeting with the Trustee in Bankruptcy
When it become apparent that the corporation can no longer continue
to carry on business and an assignment in bankruptcy is one of the
options to be considered, the initial meeting with a trustee in
bankruptcy takes place. The normal information that is reviewed
between the trustee and the shareholders/directors of the corporation
would include the following;
- most recent financial statement available for discussion (either
prepared internally or by external accountants).
- a list of all assets of the corporation showing the book value
of the assets but also showing the cash value or current liquidation
value of each asset.
- a list of all liabilities of the corporation broken into the
following categories;
- any leases for premses or equipment
- Those debts that are government claims (payroll deductions,
GST, Ontario Sales Tax, WSIB, etc.)
- Those liabilities that are secured on the assets of the corporation
(eg. a bank loan secured on accounts receivable or a mortgage
on real estate).
- All unsecured trade debts.
- Debts owing to shareholders and other non-arms length parties
(which are considered deferred creditors).
- Any liabilities which can result in the personal exposure to
liability of a director or officer.
The initial meeting with the trustee will focus on the current
cash flow from the operation of the business and it's availability
to meet current expenses. As an alternative to continuing in business,
what cash would be raised if the business ceased and the assets
were liquidated? Will there be sufficient cash raised in order to
discharge all legal obligations of the business? In situations where
goodwill is still present, the business may be sold as a going concern
generating a higher cash value than liquidating the assets of the
business. In the initial meeting, options other than bankruptcy
- eg. proposal to creditors, refinancing, converting debt to equity,
etc. will also be reviewed.
Corporate Bankruptcy
If the decision is made to proceed with bankruptcy, the trustee
will normally prepare all required documents. This will consist
of a Statement of Affairs (consisting primarily of a summary of
the assets and liabilities of the corporation), an assignment for
the general benefit of creditors (being the broad admission of the
insolvency by the company), a resolution of the Board of Directors
authorizing one person to sign all of the documentation necessary
to place the corporation into bankruptcy and any other appropriate
documents as required by law. The director who assumes the responsibility
for signing all of the documentation necessary to file the assignment
in bankruptcy will be given those sections of the
Bankruptcy
& Insolvency Act
as are necessary for him to be aware of any duties
that he might have with respect to the bankruptcy process. That
director will have the obligations for full disclosure of all assets
and liabilities and will be required to attend at the Office
of the Superintendent of Bankruptcy to discuss the
cause of the bankruptcy and history of the company with an Official
Receiver and also attend a meeting with the creditors. The individual
signing all of the documents with respect to the bankruptcy should
be the most senior director available who is fully conversant with
in all operations of the company.
During the Term of Corporate Bankruptcy
We would be pleased to discuss the ongoing events that take
place during the bankruptcy with you at our initial meeting. Please
give us a call to discuss
your specific situation. The initial meeting is at no charge to
you. It's purpose is to give you sufficient information for you
to make an informed next move. Please feel free to bring your professional
advisors (accountant, laywer etc.) to any meetings.
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