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Corporate bankruptcy in Canada

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What is corporate bankruptcy?

Corporate bankruptcy is a legal proceeding where an incorporated entity (rather than a partnership or sole proprietorship) is unable to pay its debts, and file for bankruptcy.

According to the Bankruptcy and Insolvency Act, a corporation is considered a legal ‘person’. As a director of a company, you may be personally liable for certain debts of the corporation. These debts include any outstanding HST, unpaid Source Deductions as well as any loans or leases that have been personally guaranteed.

Corporate bankruptcy allows business operations to restructure in order to manage their debt and involves reorganising assets and liabilities. This form of bankruptcy will develop a reorganization plan for bankruptcy proceedings.

In contrast to the US, there isn’t a separate bankruptcy court in Canada and jurisdiction is assigned to provincial courts.

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Is corporate bankruptcy worth it?

If you have a corporation that cannot pay off its debts, you will want to get professional assistance in deciding your next steps. Filing for bankruptcy is an option of last resort, but fortunately your liability is limited in your corporation. This means that since corporations are independent legal entities, owners are protected from liability, including debts and financial obligations faced by the corporation. As a result, corporations have business-specific options for bankruptcy.

If your corporation files for bankruptcy, the business won’t continue, and employees will likely lose their jobs although they may be entitled to recover severance. With much at stake, it is important to obtain a consultation with a Licensed Insolvency Trustee (LIT) to find out if you qualify for any alternatives to bankruptcy.

While it is true that a corporation can go bankrupt without involving any of your personal assets, there are two scenarios where your personal assets may be at risk:

If you have a personally guaranteed loan (whereby you put up any personal assets as collateral for the loan like a personal property, then this may be up for forfeiture).


You are in a director position, and the corporation has not made owed payments to the government. These may include unremitted source deductions (income tax, employment insurance, CPP), HST, GST, and more.

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Am I eligible to file for corporate bankruptcy?

To be eligible for corporate bankruptcy, you must be able to meet the following criteria:

  • Owe at least $1,000
  • Have debt greater than the sale value of your assets
  • You’re unable to pay debts when they’re due

It’s worth knowing that, even if you meet the above criteria, there are other options available and bankruptcy should be treated as a last resort.

This includes debt relief options such as debt consolidation and corporate proposal, both of which can help you avoid corporate bankruptcy.

Find out about more alternatives to corporate bankruptcy below:

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What happens when a company files for bankruptcy?

Liquidation bankruptcy dictates that a company stops its operations completely and a trustee will be appointed.

What does a bankruptcy trustee do?

A bankruptcy trustee is appointed to manage a company’s assets in the event of a corporate insolvency. They will distribute corporate assets to secured creditors and unsecured creditors according to bankruptcy law and then use the sales proceeds to settle the company’s outstanding debts.

Options to avoid corporate bankruptcy

Corporate bankruptcy should be viewed as a last resort since there are major disadvantages to bankruptcy. Always consider other avenues to take before filing a corporate bankruptcy.

A proposal is used to pay creditors a specified amount of debt over a specified period of time. It’s usually used to extend the time needed to pay the debt. Creditors decide if they will accept your proposal.

Commercial proposal

An agreement filed through a licensed insolvency trustee is available to businesses with no limit to how much money is owed to creditors (this can be higher than $250,000). If all the terms of the proposal are accepted, then the debtor is no longer legally responsible for the debts outlined in the proposal.

Declaring corporate bankruptcy

There are 3 ways your corporation can become bankrupt:

  • By a voluntary assignment
  • At a creditor’s initiation
  • Failing to comply with a Division I proposal

A voluntary assignment is the most common. In a voluntary assignment into bankruptcy, you assign your company’s assets for the general benefit of your creditors on your own accord. Your company would need to be insolvent.

In a petition for a bankruptcy order (involuntary assignment), your creditors will file a petition in a provincial court to seize your assets. Your creditors need to state in a court application that you have committed an act of bankruptcy within the last six months.

If a restructuring plan is voted down in a Division I Proposal or does not receive court approval, your company will be deemed bankrupt.

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Support across Canada

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Remove up to 80% of your debt

Our Licensed Insolvency Trustees provide a customized service that could remove up to 80% of your debt and stress, so you can breathe easier.

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Our multilingual team provides support in many languages, from Farsi and Portuguese to Italian and Tamil, leaving out complicated jargon, so you understand everything, every step of the way.

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Debt support across nine provinces

Want to speak to someone in person? Our team is on hand to help at a Harris & Partners office near you.

Corporate bankruptcy FAQs

Does corporate bankruptcy affect personal credit?

In most cases, corporate bankruptcy will not affect your personal credit rating or score as the bankruptcy will only relate directly to the interests of the corporation.

The only ways in which your personal credit may be affected is if you signed any personal guarantees of the debt, if you were a director responsible for things such as wages, or if you were a director paying yourself dividends from the company. In these scenarios, your personal credit may be affected by the corporation’s bankruptcy.

Does corporate bankruptcy affect personal assets?

In the majority of cases, only the business assets will be affected by corporate bankruptcy, not the business owners. However, exceptions to this rule occur if a business owner has put any personal assets and property as collateral against business debts, in which case they will be subject to forfeiture.

Can I get a business loan after filing for corporate bankruptcy?

Technically, you can start a business as soon as you file for bankruptcy or after the bankruptcy process has been completed.

In the same vein, you can apply for a loan after filing for bankruptcy, but it will be more difficult to obtain one as creditors will need to be convinced you won’t default. These loans may also come with higher interest rates if they deem you to be financially risky.

Where are you based?

Harris and Partners have offices across Ontario and Alberta, including: Markham, Barrie, Brampton Brantford, Calgary, Hamilton, Kitchener, North York, Oshawa, Pickering,St. Catharines and Toronto.

We also operate in the following areas and surrounding areas: Waterloo, Lethridge, London, Windsor, Guelph, Kingston, Kanata, Milton, Greater Sudbury, Red Deer, Edmonton, Fort Mcmurray.

You can contact us here today for a FREE consultation and advice on corporate bankruptcy.

File for business bankruptcy with Harris and Partners

A Licensed Insolvency Trustee (previously known as a Trustee in Bankruptcy), can conduct a review of your corporate finances to help you determine if there is another option that is suitable besides declaring bankruptcy. Often there is another option available to you even if your corporation has been insolvent for an extended period of time.

If there is no other option but bankruptcy, your trustee will administer the process, complete the necessary forms, and handle all communications with creditors. Company assets will be liquidated to pay creditors as much as possible.

If you need help from those who specialize in solving debt problems, contact us at Harris & Partners Inc. Licensed Insolvency Trustee. Across Canada, our federally Licensed Insolvency Trustees can help you achieve long-lasting financial solutions.

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