A small business can range from fully incorporated business with multiple shareholders and employees to self-employed individuals who operate as a sole proprietorship or partnership.
Whether bankruptcy is right for your small business depends on many factors such as the structure of your business, the amount and type of debts, the value and nature of any assets, etc. There are many options available to help get your small business out of debt. Keep in mind that bankruptcy should be your last choice.
Proposals to Creditors - used by small businesses that cannot meet their obligations but wish to make a settlement with their creditors and avoid bankruptcy. First, the small business works with a federally licensed Trustee to determine how much is owed, how much the business can afford to pay monthly to service its debts and continue operations, and how long it would take to pay off these debts. At this point the Trustee assists in the preparation and presentation of a proposal to the businesses creditors. The small business uses the Bankruptcy and Insolvency Act instead of informal, legally binding settlements, forcing the minority of creditors to follow along.
This agreement may allow the small business to pay off only a portion of its debts and/or extend the time it has to pay them off. A. Farber & Partners Inc. professionals can help you draw up and present a formal offer that is fair and reasonable to the creditors but also affordable to the small business. If the required majority of the creditors accept the offer, then all your unsecured creditors are obliged by law to also accept the offer.
Filing a Proposal immediately stops all collection efforts and legal actions by the small businesses creditors, including lawsuits, asset seizures, and wage garnishments, without having to file for bankruptcy. This type of debt relief is another alternative to a bankruptcy filing.
Division 1 Proposal - mainly used by small to medium-sized enterprises and consumers owing more than $75,000 in debt. Creditors are asked to accept a proportion of the full amount owed. Generally, the proposal is directed at ordinary unsecured creditors, while secured creditors are dealt with by individual negotiation. In larger, more complex proposals, classes of secured creditors are created to vote on the proposal. If the requisite creditors (50% in number and 66 2/3% in dollar value) agree and the court approves, the proponent can restructure his or her balance sheet by reducing the debt. If creditors or the court refuse, the company is automatically deemed bankrupt.
Consumer Proposal - a simplified form of a proposal available only to individual debtors (which includes sole-proprietorships and partnerships) owing less than $75,000, excluding mortgages on the principal residence whereby the individual asks their creditors to accept a proportion of the full amount owed. If more than 50% of the dollar value of creditors agree and the court approves, the small business and its owner can reduce their debt. If creditors refuse, the small business and individual are not automatically deemed bankrupt, but in reality almost always make an assignment in bankruptcy.
Informal Settlement - a proposal made to creditors without the protection of the BIA, usually negotiated by insolvency professionals, as they are aware of the other possible options, and add credibility to the negotiations.
Every informal proposal is unique and results from negotiations with creditors, who may or may not accept it. Small businesses in deep financial crisis and those with numerous creditors may find this solution difficult to implement. For those that succeed in taking this route, an informal proposal enables them to navigate through difficult times without a formal reorganization. For those that fail, it allows creditors to pursue collection actions. The most common cause of failure results from one creditor obtaining judgment against the debtor such that renders the negotiated settlements with other creditors impossible to perform.
Credit Counselling - A type of Informal Settlement whereby a third party such as a credit counsellor assists the debtor in negotiations with creditors. This procedure usually requires that the full debt be repaid but stops interest from accumulating.
Be aware that there are many unlicensed firms and individuals practicing in this field, posing obvious risks to both creditors and debtors. Unlike a proposal under the Bankruptcy and Insolvency Act (BIA), in Credit Counselling the creditors are not prohibited from taking enforcement of debt or collection actions against the debtor.
Debt negotiation - involves contacting some or all of your creditors to explain your financial situation and suggest an arrangement that is tailored for your circumstances. With assistance from professionals at A. Farber & Partners Inc., debt negotiation could be a viable alternative to bankruptcy, and to preserving your credit rating.
Debt Elimination & Consolidation Loan - A. Farber & Partners Inc. can help your business secure a single loan to repay all of your other debts by approaching your bank or our network of lenders. While you may still owe the same amount in total, the monthly payment is often lower and you will only have one payment to make every month, which makes debt elimination easier. Debt consolidation is another alternative to filing bankruptcy in Canada.
Bankruptcy - as a last resort, you can address a financial crisis by declaring bankruptcy. Filing bankruptcy in Ontario is a relatively simple legal process that immediately stops all collection efforts and legal actions by your creditors, including lawsuits, asset seizures, and distraint proceedings. The bankruptcy process includes debt-counselling sessions that can help you create realistic budgets and regain control over your small business's finances. While nobody wants to go bankrupt, this may be the most appropriate solution for bringing closure to a difficult rebuilding a sound financial future.
