Corporate Bankruptcy

Corporate Bankruptcy, Reorganization, and Protection Services

Considering a corporate bankruptcy is a process, can be a very complex and stressful, that most business owners never envisioned when they started their business. Our team can help you navigate the process of a corporate bankruptcy in Canada and make the process go as smoothly as possible.

Corporate Bankruptcy Laws and Process in Canada

A key distinction to understand is that a corporate bankruptcy in Canada is not the same as a personal bankruptcy and only applies to incorporated businesses. For individuals with sole proprietorship a corporate bankruptcy does not apply – they would rather be looking at a personal bankruptcy.

Corporate bankruptcy in Canada is a very complex process with multiple Federal statutes governing the process of a corporate insolvency, including:

  • The Bankruptcy and Insolvency Act (BIA),
  • The Companies’ Creditors Arrangement Act (CCAA), and
  • The Winding-Up and Restructuring Act,

Complicating the process even further, numerous provincial legislations are also applied to corporate bankruptcy, with many provinces having their own general bankruptcy statutes as well as industry and issue specific statutes in place. Some key areas that typically have additional legal requirements in place include:

  • Treatment of workers,
  • Builder’s Liens,
  • Bulk Sales companies (in Ontario Only),
  • Personal Property, and
  • Securities Transfers.

This list is not exhaustive and it does underline the need to engage a legal professional when considering a corporate bankruptcy in Canada. Our team can assist you with managing a corporate bankruptcy and clearly understanding the laws and processes that need to be followed to address your specific circumstances. Every corporate bankruptcy is unique and as such, addressing those unique issues requires professional consultation.

The BIA supersedes many of the other statutes that exists, though it has been modified to refer specifically to additional legislated guidance on certain issues.

Entities that are governed by the BIA in terms of guiding the bankruptcy process include:

  • Any business that resides or carries on operations in Canada,
  • Including partnerships and unincorporated associations or organizations,
  • Financial institutions and farmers are specifically exempt and addressed under different statutes.

Protection Options for Corporate Bankruptcy

As a corporation is a separate legal entity in Canada, in most cases there is a clear break between the debts and assets of a corporation and the debts and assets of the corporation’s owner. A distinction here is that unpaid source deductions (income tax, EI, CPP) and sales tax liabilities can become owed by directors of a corporation after a corporation has gone bankrupt.

When a corporation begins the process of declaring bankruptcy, there are protective provisions in place to protect the current financial position of the corporation.


The first provision is referred to as a stay or proceedings. Effectively no party can terminate, amend, or accelerate repayment under any contracts that the corporation is a party to, solely due to the reason the corporation is declaring bankruptcy. This prevents parties from making additional claims against a corporation in bankruptcy to try and maximize their share of any payments on dissolution of the corporation. When a corporation sends a notice of intention to suppliers and parties, it has contracts in place with the stay of proceedings started.


The second key protective provision is the suspension of attachments. Namely, once the bankruptcy process begins, all other judicial processes or garnishments are superseded by the BIA. Effectively, the legal guidelines of the act will take precedence over any other legal claims or issues that exist.


The last key provision is the enforcement of Contractual Agreements remaining to be required in the event that a bankruptcy process has begun. This can be as far reaching as requiring suppliers to continue to deal with a corporation if those supplies or services are considered required for the company’s continued operations.

Bankruptcy Process and Reorganization

In considering the bankruptcy process, a corporation has several options to avoid a formal bankruptcy, some of which are also governed by the BIA in terms of protections that can be provided. These range from informal and out of court arrangements with creditors, namely to restructure debt and payments, to formal applications under the CCAA to effect a compromise or arrangement with creditors in a legal context.

In following the bankruptcy process, a trustee is appointed to administer the property of the bankrupt company and settle debts in a manner consistent with the guidelines of the BIA. Typically, the assets of the company will be liquidated, with creditors being paid in a hierarchy of secured and then unsecured debt. Shareholders will only receive funds in the event that all of the creditors of a bankrupt corporate have already been settled.

A business, considering the process of a corporate bankruptcy, can reach out to our team of professionals to provide the consultation and advice to ensure the bankruptcy process is correctly managed, and that alternative options are clearly understood.