Business Bankruptcy

Is your business struggling badly enough to go bankrupt? Here are answers to some frequently asked questions about business bankruptcy.

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Why do businesses go bankrupt? “While management problems can play a part, events beyond management’s control can also contribute to business bankruptcy,” says Chartered Accountant Eugene Migus, a senior vice-president with BDO Dunwoody Limited in Mississauga who is also a CA-designated specialist in insolvency and restructuring. Events beyond management’s control include adverse market conditions, labour problems, obsolete equipment or facilities, and political or social changes that affect the market for the company’s product. “As well, tighter economic conditions bring higher interest rates, tighter credit, inflating costs, slower collections on accounts receivable, suppliers demanding to be paid sooner and smaller profit margins,” Migus says. “Banks require higher security margins, and there will be a higher risk of insolvency among customers, which may have serious consequences for small and medium-sized businesses.” What is involved in declaring business bankruptcy? “It means shutting down your business and liquidating all available assets of the business for the benefit of your creditors,” explains Migus. “You meet with a trustee in bankruptcy, who prepares the necessary documents and submits them to the Office of the Superintendent of Bankruptcy. As a director of the corporation, you’re obligated to co-operate with the trustee and possibly assist in his or her duties.” Can the business ever start again? A corporation cannot be discharged from bankruptcy unless all its debts are repaid in full. “But a business owner can start a new business because it’s the corporation that filed for bankruptcy, not the business owner,” Migus explains. What are the alternatives to declaring bankruptcy? If your business is struggling, bankruptcy is your last resort. Prior to declaring bankruptcy, Migus suggests determining the cause and extent of your financial problems, preparing up-to-date financial statements and talking to your bank and other secured creditors. It’s also important to seek outside help from a professional, such as a Chartered Accountant, to help identify and implement corrective measures that could save your business. “CAs understand the concerns of secured lenders and government authorities and can help with ongoing communications with these parties,” Migus says. “They can also advise on possible alternatives to bankruptcy, such as refinancing, selling, downsizing, reorganizing existing debt and hiring new management expertise.”