There is often confusion between insolvency and bankruptcy, but insolvency is not bankruptcy.
Insolvency is when a company or person cannot pay their debts once they are due to be paid, or if they have insufficient assets to meet their liabilities. At this time, you still have several options to rescue, protect and preserve your business, assets and family life.
Bankruptcy itself is the formal state of insolvency once a Court Order has been made or the insolvent entity (company or person) has assigned themselves into a bankruptcy. There are legal requirements in order for a bankruptcy to occur, such as more than $1,000 being owed to more than a single creditor.
Bankruptcy itself splits into 2 very different sectors – corporate bankruptcy and personal (also known as consumer) bankruptcy.
Corporate bankruptcy requires a Licensed Insolvency Trustee to realize the value of a company’s assets, and distribute the funds to those who are owed money by the company according to a ranking in the Bankruptcy and Insolvency Act. A close analogy is that you could consider that the company has died and the Licensed Insolvency Trustee is the executor of the will.
Once a corporate bankruptcy occurs, there are limited options for the company, but good advice beforehand can ensure that the directors do not expose themselves to personal liabilities or breaches of their fiduciary duties. Sometimes, we will need to plan for the directors to deal with personal liabilities arising from the company’s affairs once the corporate bankruptcy occurs. Baigel Corp. does not leave directors to fend for themselves after the corporate bankruptcy.
Personal bankruptcy is obviously about people and how to put their lives back together, which is why Baigel Corp. prefers the term “personal” to “consumer”. We never forget that we are dealing with people’s personal lives, and their family’s lives. Approximately 90% of bankruptcies in Canada are personal bankruptcies.