Business Bankruptcy Protection in Canada: Your Full Guide

How does an owner of a business protect oneself in the event of a bankruptcy?

The failure of a business and related liabilities could be the personal responsibility of the business owners. These businesses related debts often result in the owners of the business having to file a Personal Bankruptcy or Consumer Proposal.

1. Incorporation of a business provides the owner with a level of creditor protection. The majority of a corporation’s obligations are limited to its assets, as the structure provides protection for personal assets.
2. In Ontario, directors of an incorporated business are personally liable for statutory debts such as:
   • Payroll source deductions
   • Harmonized Sales Tax collected
   • Employee wages and vacation payable

     So always ensure these debts are paid on a timely basis!

3. Owners of incorporated business generally use their personal funds to invest in their business and too often without adequate documentation for these loans. Any personal loans by an owner to the business should be done through a properly documented loan; a General Security Agreement and should be properly registered and perfected under the Personal Property Security Act (“PPSA”). Proper registration of the security interest protects these loans and in the event of the failure of the business; the owner would have priority to the assets of the business, ahead of the unsecured creditors. 

   Without the proper security in place, the owner of the business would be considered an unsecured creditor and will have to wait in line to be paid with all the other unsecured creditors.

4. Business owners should consider acquiring personal assets in a spouse’s name or a family trust. Such assets do not form part of the transferor’s bankruptcy estate and are therefore not subject to claims of estate creditors.
5. If funds are being put away for retirement, consideration should be given to investing in Registered Retirement Savings Plans (“RRSPs”) that are exempt from claims; some exceptions may apply.
6. Owners of a business should not give personal guarantees of company obligations, unless it is absolutely necessary.

Protecting oneself should be done at the start of a business venture. With careful planning, an owner of a business can be ready if things don’t go as well as expected.

With over 30 years of experience in debt solutions, A. Farber & Partners can help you Review your financial situation, assist you in obtaining Relief from all or substantially all your debts and give you the tools to Rebuild a better, more financially secure future.

Our team of Federally-licensed debt relief professionals are available to discuss your situation in detail. Apply for a FREE, no-obligation Debt Consultation, to learn all about your options to get out of debt.