Talking Business Struggles

Earlier this month I had an opportunity to speak with members in our networking group about business struggles as a result of COVID-19 and how a proposal under the Bankruptcy and Insolvency Act could provide for a clean balance sheet and fresh start. Below are some of the key points


The hat that we wear in the debt services industry is the hat of a Licensed Insolvency Trustee (LIT). We are licensed by the Office of the Superintendent of Bankruptcy and operate under the Bankruptcy and Insolvency Act statutes, Rules and Regulations; as well as Directives issued by the Office of the Superintendent of Bankruptcy. Any Individual, corporation or partnerships looking to avail themselves of the relief offered under the BIA must do so through a LIT.

Talking Business Struggles

COVID-19, as we are all aware has created fiscal hardship on a lot of businesses. It seems that even the large multinational companies have felt the economic wrath of this disease.

The government has tried to provide some measures of relief, like the Canada Emergency Commercial Rent Assistance and various loans. Even with the Government relief, some businesses continue to struggle. The business struggle could come from an assortment of issues including, but not limited, to their customers being overly cautious, customers now having limited funds to spend during this difficult time, business operating restrictions. These reasons, as well as other reasons, have resulted in a reduction of gross revenue. In addition to the drop in gross revenue, operating overhead likely hasn’t changed much. For some businesses, it has been a rough ride.

How can a Proposal Help With Business Struggles?

A proposal under the Bankruptcy and Insolvency Act is an opportunity to restructure a business’ balance sheet. In simple terms, it affords a business the legal framework to work with its creditors as a whole and provide for payment terms which are manageable for the business and satisfactory for the general body of its creditors.

Downside to a Proposal?

A proposal does have downsides, some of which will be covered below. The biggest risk is that a proposal that is rejected by its creditors or not approved by the court will deem the business to have made an assignment in bankruptcy.

Now to some of the positives

Commercial Leases for Operations

Some businesses might find themselves in unfavourable leases for their operating locations. There may be a need for downsizing operating space as a result of having more employees working from home or with the potential change in how a business delivers its service or products. It is likely safe to say that business owners, whether they like it or not, have been dragged into the digital age!

With a proposal, there is the ability to disclaim a lease or multiple leases. So if you want to reduce the number of locations that you operate from or simply reduce the square footage as more employees work from home, this now becomes possible.

This great news comes with some caveats though. To disclaim a lease, it must be shown that it is necessary in order to advance a viable proposal. A disclaimer of lease can also be challenged by the landlord. Further, once a lease has been disclaimed, your landlord now has a right to vote on the acceptance of your proposal.

Business Struggles as a Result of Owing the Canada Revenue Agency (CRA) Tax Debt

If you owe CRA money and they’re calling, doing nothing could be a disastrous plan of action. CRA has the best toolbox around for the collection of debt. They can freeze your bank accounts, register liens against your assets and even contact your customers to collect your accounts receivable. Any of these actions could put you out of business instantaneously. A business that has been or has begun to struggle will find that they have stopped paying payroll deductions, HST and corporate tax debt.

Corporate Tax Debt

Corporate tax debt is a tax obligation arising when a company earns a net profit for a fiscal period. Companies that have been struggling likely won’t have this obligation just yet. But if your company has been successful, it will have corporate income tax payable. In a proposal, corporate income tax owing is an ordinary unsecured debt. Unlike HST and payroll deductions, there are no special priorities or treatment for this debt.

Payroll Deductions

Payroll deductions include the monies that are deducted from an employees pay cheque, for the benefit of the CRA, and the matching portion that the employer is responsible for. This debt poses a hurdle in the proposal as it is required, in order for the Court to approve a proposal, for this debt to be paid in full within 6 months of the Court approving the proposal. The CRA can consent to have this payment made over a longer period of time but that is more the exception to the rule.

HST Obligations

If your business generates more than $30,000 in gross revenue, your business will be required to collect HST on behalf of the CRA. The collection of this tax is strictly for the benefit of the CRA and is to be remitted in full at the end of each reporting period. Failure to remit this tax creates a liability for the director.

When a proposal is filed, the corporation has an opportunity to discharge this debt. However, as mentioned above, the director has becomes jointly and severally liable for the debt. There is a mechanism within the proposal, that can mitigate or expunge this obligation.

Institutional Debt and Credit Card Debt

Generally speaking, credit card debt will be unsecured and cleaned up in a proposal. Lines of credit and operating accounts however may be secured against the assets of the business. Options with secured debt are limited but the unsecured debt in this pool will get discharge from a proposal. This means that your days of dealing with interest rates and never-ending debt pay down can be a thing of the past. Watch out for personal guarantees though!

Trade Debt

Trade debt can become a headache. In some cases you end up will multiple creditors calling you for payments. These debts also lead to the involvement of collection agencies or even lawyers. If you owe money, and collection agencies are involved, you can expect your phone to ring but it will be for the wrong reasons. These creditors also tend to lack experience in insolvency matters. A proposal will stop collection activity, stop litigation and protect your assets from your creditors. You will likely lose some of your suppliers and the ones that are willing to still work with you will have you on cash-on-delivery terms.

Business Struggles Solved

A successful proposal can be a necessary tool to allow your company to pick itself up at the end of the COVID-19 pandemic and become a viable employer and trade partner in the economy. If your balance sheet suggest that there are significant debt issues, it is worth talking with a Licensed Insolvency Trustee. Worst case scenario is that you leave the conversation with more knowledge.

Contacting us

You can visit our website at:; email us at; or call us at 519-601-9793

Please follow and like us: