COMMERCIAL BANKRUPTCY

A company can be placed into bankruptcy by:

1 - a creditor petitioning the company into bankruptcy through the courts;
2 - the directors assigning the company into bankruptcy;
3 - having a proposal to the creditors defeated at the first meeting of creditors;
4 - having a proposal annulled by the trustee on creditor instructions for non-compliance.

Some reasons for placing a company into bankruptcy are:

1 - Landlord distraint (seizure of assets to pay for rent arrears)- If a landlord distrains and seizes the company assets the company must pay the rent arrears or settle with the landlord. The landlord may sell the assets after five days of the seizure. An assignment into bankruptcy or a notice of intention to file a proposal within the five day period causes a stay of proceedings which stops the rent distraint.

2 - the company is no longer viable and has free assets (no security) which are available for the creditors.

3 - the company would not be viable even if a proposal to the creditors was filed.

4 - to rearrange the priority of statutory creditors.

5 - to formally bring the company to an end and supply a full accounting to the creditors so they do not suspect the principals of any wrong doing.

In a corporate bankruptcy the trustee takes possession of all the company's assets and he deals with all of the creditors. The directors cooperate with the Trustee and might assist him in his duties but are relieved of all the pressures and frustrations of operating the company and dealing with customers and creditors.