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Some Facts About Business Bankruptcy Business 

Some Facts About Business Bankruptcy

Every year, entrepreneurs declare bankruptcy. You may have to deal with it one day or one of your customers, partners or suppliers. In either case, the following information may be very useful to you!

This article was written according to the laws and information from Nicole Lacasse’s book Droit de l’entreprise, 8th Edition, and is intended as a simplified summary of the laws surrounding bankruptcy.

First, let’s define what bankruptcy is; a legal approach, which can be voluntary or forced. We declare bankruptcy in insolvency, that is to say when our liabilities (debts) exceed our assets (assets) and it is no longer possible to pay our creditors.

The proposal

If you can not pay your debts, you can offer your creditors a proposal for debt relief. This proposal aims to establish new repayment terms with them, so you can get through your debts and save the business. This proposal may spread your repayments over a longer period and / or reduce what you need to repay. In fact, when we say that a company went into bankruptcy protection, it is because it filed a notice of intention, which announces its intention to make a proposal to its bankruptcy. creditors. At first glance, it may seem uninteresting for creditors to accept such a proposal, but it is important to understand that if the company declares bankruptcy, they may receive even less than what you offer them, or even nothing at all. For the proposal to be adopted, it must be accepted by the majority of creditors.

In addition, if your business is a corporation, is bankrupt, insolvent or in the process of being liquidated and the claims amount is greater than $ 5 million, you may propose an arrangement to your creditors, in accordance with the Companies’ Creditors Arrangement Act . This arrangement is similar to the proposal, with the difference that you will not automatically face bankruptcy in the event of a refusal by your creditors.


If your creditors do not accept the proposal (or the arrangement), or if you yourself believe that such an agreement is not desirable, then you will face bankruptcy. In the case of a voluntary bankruptcy, you must file a deed of assignment of all your seizable property for the benefit of your creditors (Bankruptcy Act, section 49), which lists among other things your assets and debts. One of your creditors may also force you into bankruptcy if he can show that you have committed an act of bankruptcy (Lf art 43).

The trustee, the union, the representative

The trustee is a professional who will take care of your file and distribute your assets between your creditors in order to wipe out as much as possible your debts. It can also intervene in case of proposal concordataire as advisor.

Types of creditors

Not all creditors have the same rights. Indeed, some will have to be reimbursed in priority on others and this, whatever your will. This is particularly important to know because if a company owes you money, and owes it to many others, it is your place in the ranks of the creditors that will ensure that you will be able to review or not your money, in case of bankruptcy.

Secured creditors are not affected by the bankruptcy, since they hold collateral on the receivables and so they can take back these collateral (grab you) to pay back. They are the ones who hold your mortgage, for example, or a guarantee on your property, like a car.

The first to be repaid in bankruptcy are the preferred creditors . These are the trustee’s fees and legal fees incurred by the bankruptcy, the employees to whom you owe unpaid wages, unpaid food allowances of the last year, municipal taxes other than land and unpaid rents, if you rent premises.

The ordinary creditors are all the other creditors and they will be paid, if there is any money, in proportion to the claims you owe them.

Deferred creditors , on the other hand, are usually tied to the bankrupt (spouse or children) and as they must be paid only after everyone has received his due, he usually receives nothing.

And after?

Once the trustee has seized all the property he is entitled to take to pay off your creditors, you will be released from all your debts, with the exception of alimony and student loans. Some exceptions may interfere, but generally, you will be free nine months after the date of your bankruptcy and you will receive a certificate that guarantees it.

This article is a short summary of the laws applicable to bankruptcy. For more information, consult the Bankruptcy and Insolvency Act or attend our corporate law luncheon with Me Catherine Morissette ! See you soon!

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