File a Bankruptcy or Walk Away from Your Small Business?

Crowe Soberman Insolvency Team
| 6/3/2016
File a bankruptcy or walk away?

When your business is experiencing financial difficulties, there are several factors we will review with you prior to making a decision on your best options:

  • Does the business have assets?
  • Is the business profitable?
  • Is the business viable?
  • Are you personally liable for some/all of the corporate debts?
  • What liability do you have as a director of the corporation?

Our team meets with small business owners and we’re frequently asked whether they should file a formal bankruptcy or simply “walk away” from their insolvent corporation, without taking any formal steps to wind it down or to settle the business debts of the corporation.

There is a cost associated to formally file a bankruptcy for an incorporated business, which will depend on the circumstances and complexity involved.

Not taking action, and simply walking away, in many cases, may end up costing more than a formal bankruptcy.

Small business owners often overlook the following factors when contemplating the decision of filing a bankruptcy vs. simply taking no action and walking away from their insolvent corporation/business:

  • Protection from creditors – A bankruptcy filing creates an automatic stay of proceedings, preventing creditors from suing the company or taking legal action against the company to collect their debt. Should a small business owner decide to simply “walk away without a bankruptcy” they may end up spending significant time and legal costs defending lawsuits filed against the corporation by the creditors who are still owed money.
  • Corporate filings/tax returns – Without filing a bankruptcy, a small business owner would still be required to file corporate tax returns, and GST/HST returns, regardless of whether their company is still operating and/or earning income. Small business owners would still have to incur the professional costs of accountants to prepare and file the returns. On the other hand, if a bankruptcy is filed, the Trustee would be responsible for completing all required final returns, alleviating one more burden from the director/owner.

Financial problems are, unfortunately, a reality for a growing number of businesses in Ontario. Our corporate recovery and insolvency specialists work to help you with today’s ever-changing and complex debtor/creditor and asset protection laws and regulations. Contact us to find out how we can help.

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Hans Rizarri
Hans Rizarri
Partner, Corporate Recovery & Turnaround