Vancouver businesses are struggling financially due to COVID-19. Debt and taxes are piling up. Rent is overdue. Payroll is late. Banks are calling in loans or refusing to provide further funds. If this sounds like your business, it’s time to take stock and get a plan in place to help your business survive. Corporate restructuring may be the best option—but is informal or formal restructuring what your company needs? Vancouver insolvency trustees can review your individual company’s circumstances and help you decide. Here are some of the basics to consider when deciding between informal and formal restructuring to deal with business debt.
Deal with debt using corporate restructuring
- Informal restructuring.
Informal or “private” corporate restructuring typically involves contacting creditors directly to explain your company’s current financial situation and try to come to an arrangement (for example, an agreement to accept delayed payment, to settle a debt by a one-time payment, or to implement a new payment arrangement). This can be done with or without professional assistance. Informal restructuring may also involve steps such as changes in management of your business, downsizing, reducing your staff or inventory, and renegotiating unprofitable contracts (e.g., leases, supplier/inventory contracts) to deal with financial hardship.
- Formal restructuring.
A formal restructuring involves legal insolvency proceedings to get protection from creditors, dealing with all of your company’s creditors at once. Formal corporate restructurings require oversight by a licenced insolvency professional who will help your company to put a proposal together to present to all creditors and then administer the proposal after it has been approved by the Court. Proposals can include repayment on new terms, requests for longer time to repay debts, or payment of debts from the sale of company assets, shares in the company, or a combination of all three. What you propose depends on your company’s current financial situation and future goals.
Note that there are two options for formal restructuring. Formal restructuring can be done by:
- A Division I Proposal (“Proposal”) under the Bankruptcy and Insolvency Act (BIA); or
- A “Plan of Arrangement” under the Companies’ Creditors Arrangement Act (CCAA).
Each has its own rules and advantages to consider, and the availability of those options will depend on the size of your company, amount of debt, and needs of your business. Consult with one of our Vancouver insolvency professionals to learn more.
Is informal or formal restructuring the best option for my business?
Our team recently discussed reasons to consider restructuring and an overview of the benefits and risks associated with the different options for corporate restructuring. Vancouver business owners who are considering restructuring but unsure of whether informal or formal is best should ask themselves these questions:
- How large is my company’s debt?
What is achievable based on the current cash flow of my business? The size of the debt and the amount your company can reasonably afford to pay are important considerations. Creditors are not obligated to accept an informal arrangement but may if it will provide them with a better return than if your company ceases to operate or filed for bankruptcy.
- Does my business have a lot of creditors and/or complex debt?
Informal arrangements may only be possible if your company has a small number of creditors.
- Have direct negotiations with creditors been unsuccessful?
Informal arrangements may be less likely to be accepted by creditors. A proposal prepared by a licensed insolvency practitioner is more likely to be accepted, and creates a legally binding contract that neither you or your creditors can back out of.
- What type of creditors are you dealing with?
There is a lot of strategy to consider here, as there are different rules for different types of creditors (e.g., secured, unsecured, and/or “preferred” creditors).
- Does my business need protection from legal action by creditors?
Only formal restructuring can give your business protection from creditors and debt collection in the form of a stay of proceedings. This allows your company to continue operating while working on the restructuring plan to present to creditors.
All businesses face financial challenges at one point or another. Don’t ignore the warning signs. Instead, take action and address your business’ financial troubles without delay. If your goal is to get some breathing room for your business, contact us today to schedule an appointment with one of our insolvency professionals in Vancouver. Corporate restructuring—informal or formal—is just one of the range of options we can help you explore.
At Crowe MacKay & Company, we have over 60 years of experience and offer free initial consultations. If you have any questions regarding the information above, contact our office today and start your debt relief journey.
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This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual needs. This publication is not a substitute for obtaining personalized advice. If you require corporate or personal Insolvency services, Crowe MacKay & Company provides custom solutions for clients, allowing them to live debt-free.