While financial difficulties could mean the end to a company, in many cases a company in this situation has options that could keep it in business. Since the liquidation of a business in the course of a bankruptcy impacts not only that company and its employees, but its creditors and potentially their employees as well, exploring the options available to save a business is often best for all involved.
Those options will vary depending on the specific circumstances. For some businesses, a Division I proposal may be a way to address the debt. Under this approach, which is governed by the Bankruptcy and insolvency Act, with the assistance of a licensed Insolvency Trustee, the business puts together a proposal regarding how to handle the debt. The offer created could include paying creditors a percentage of what is owed. It could also entail the creation of repayment plan. In some situations both approaches will be incorporated in the proposal.
Another option for businesses that are more heavily in debt may be provided for under the Companies' Creditors Arrangement Act. This federal law allows corporations that are insolvent to pursue protection from creditors so they may create a Plan of Compromise, also referred to as a Plan of Arrangement. Here again, creditors are provided the opportunity to approve the repayment offer.
When plans under the BIA or the CCAA are approved and successfully executed upon, the business will avoid declaring bankruptcy.
Most businesses are not in a position to recognize the options available address financial hardship, without the counsel of a lawyer. Since so much is at stake, not only for the business, but potentially the community as well, the sooner a business takes action, the better.