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 could be very useful to you!
This article was written according to the laws and information from a book, 8th Edition, and is intended as a simplified summary of the laws surrounding bankruptcy.
First, let’s define what bankruptcy is; a legal process, 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.
If you can no longer 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. Moreover, when we say that a company has gone into bankruptcy protection, it is because it has 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 risk receiving 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.
On the other hand, if your business is a corporation, is bankrupt, insolvent or in the process of being liquidated and the amount of the claim is more than $ 5 million, you can make an arrangement to your creditors, pursuant to 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 voluntary bankruptcy, you must file a deed of assignment of all your seizable property for the benefit of your creditors, which includes your assets and debts, among other things. One of your creditors may also force you into bankruptcy if he can show that you have committed an act of bankruptcy.
The trustee is a professional who will take care of your file and will 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.
All creditors do not have the same rights. Indeed, some will have to be reimbursed in priority on others and this, whatever you 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 collaterals (grab you) to pay themselves back. They are the ones who hold your mortgage, for example, or a guarantee on your property, like a car.
The first to be reimbursed in bankruptcy is 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 money, in proportion to the debts 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.
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.