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RECEIVERSHIP IN CANADA: THE COMPLETE STORY OF WHOSE HAPPY RECEIVER IS IT ANYWAY?

receivership in canada
receivership in canada

Receivership in Canada: What does receivership mean?

I have just read a decision of the Ontario Superior Court of Justice Commerical List dealing with an important aspect of receivership in Canada. The case is concerned with what happens when two equally applicable provincial laws appear to be working at cross purposes in the context of the receivership in Canada process.

I will explain the case and the process of company receivership in Canada. By understanding the process, the case will make more sense.

Secured lenders may enforce their security to recover loans from borrowers who have defaulted. This remedy available to secured creditors when a borrower, usually a company defaults, is known as receivership.

What does going into receivership in Canada mean?

A receivership is a legal process available to secured creditors, whereby a company’s affairs, business and property are entrusted to a receiver to manage and eventually sell the assets. Secured lenders may enforce their security to recover loans from borrowers who have defaulted. This remedy available to secured creditors is known as receivership.

If a business debtor does not make payments or otherwise defaults on a secured loan, the secured creditor would have the right to appoint a receiver to collect the money owed. Before appointing a receiver, a secured creditor must first issue a “Section 244” notice of intention to enforce security. This is a notification that secured creditors must send to defaulting debtors before appointing a receiver. Section 244 refers to that section number in the Bankruptcy and Insolvency Act (Canada) (BIA).

The notice states that the security covers certain assets, that the company in default owes a specified amount to the secured creditor, and that the creditor may enforce the security after 10 days. The company in default may waive the notice period and consent to the appointment of the receiver.

Under the BIA, only a licensed insolvency trustee (formerly called a trustee in bankruptcy) can be a receiver. No other party is licensed to administer a receivership in Canada.

receivership in canada
receivership in canada

Receivership in Canada: What is the difference between a court-appointed receiver and a privately appointed receiver?

A privately-appointed receiver is a licensed trustee who is appointed by a contract between the insolvency trustee and the secured creditor. A private receiver is typically used when there is no dispute to ranking among secured creditors or various claims to ownership of the company’s assets. The powers of a receiver listed in the security document give the privately appointed receiver more limited powers than a court-appointed receiver gets under a court order.

A receiver is court-appointed when the secured creditor makes an application to the court for the appointment of a receiver with more expanded powers. Like a privately-appointed receiver, a court-appointed receiver takes control of a company’s property because of financial distress and when there is a dispute among secured creditors and others as to the ranking of secured claims and ownership of property.

Both kinds of receivers are tasked with protecting and preserving the value of the company or property and are certainly given broader powers by the court to do so.

How is receivership in Canada different from bankruptcy proceedings?

Many people mistakenly use the terms “receivership” and “bankruptcy” interchangeably. However, bankruptcy and receivership are two distinct legal proceedings with different implications.

Bankruptcy vs. receivership can be confusing, but once you understand the key differences between the two, it is fairly straightforward. Whether it is a private appointment or a court-appointed receiver, the differences between bankruptcy and receivership in Canada are the same.

A receivership is a legal remedy available to secured creditors to enforce their security rights against a defaulting debtor. A receiver is appointed to manage the debtor’s property and assets and sell them under a properly run and fair sales process.

The Canadian bankruptcy process is a distinct legal process. An insolvency trustee does not represent secured creditors in bankruptcy proceedings. Instead, under the bankruptcy regime, they represent the unsecured creditors of the bankrupt estate. A corporate debtor may be subject to both bankruptcy and receivership proceedings simultaneously.

One of the major differences has to do with the creditors. In a bankruptcy administration, the bankruptcy trustee must call a meeting of creditors. This is where the insolvency trustee provides its report on the affairs and conduct of the bankrupt debtor and unsecured creditors get to vote on any matters of importance. In receivership, there is no such requirement to hold a meeting of creditors.

receivership in canada
receivership in canada

What are the key distinctions between receivership in Canada and liquidation?

So you know what receivership is by now. The federal BIA doesn’t govern liquidation, that’s done under the provincial Business Corporations Act or Wind-Up Act.

A liquidation is for a solvent company where the shareholders, Officers and directors decide to cease business operations. The company puts up its assets for sale and uses the proceeds to pay off its creditors with cash. Any funds left over are then distributed to the shareholders.

A liquidator can be appointed either privately by the company’s directors or by a court order. Liquidation is therefore different from both bankruptcy and receivership in Canada.

Can individuals be placed into receivership in Canada?

The answer is yes. When a secured creditor wishes to take enforcement action upon the security agreement they have against a debtor’s property, as indicated above, they have the remedy of receivership in Canada. This remedy allows them to collect as much of their secured debt as possible.

There are no restrictions as to who can go into receivership in Canada. One of our more famous (infamous?) receivership cases over the years has been the receivership of the assets, property and undertaking of Norma and Ronauld Walton.

receivership in canada
receivership in canada

Receivership in Canada: Whose receiver is it anyway?

Now for the court case where two different provincial laws caused a fight amongst secured creditors over the appointment of a receiver. The case is Canadian Equipment Finance and Leasing Inc. v. The Hypoint Company Limited, 2618905 Ontario Limited, 2618909 Ontario Limited, Beverley Rockliffe and Chantal Bock, 2022 ONSC 6186. The two competing provincial statutes are the Mortgages Act and the Personal Property Security Act.

The business is conducted through two affiliated entities. One owns the property and the other operates the business. This is quite a typical arrangement.

One creditor funded the purchase of equipment and took PPSA security over it. Another creditor funded the acquisition of the real property and has a traditional mortgage security. The security agreements extend over different assets, and the outcome is usually uncomplicated.

However, when equipment that has been purchased is attached to real property, there is disagreement about whether and how it can be removed, and whether such removal will negatively affect the value of both the equipment and the real property. The question is now more complicated: which creditor’s rights should take priority over this matter?

Both the equipment lender and the mortgagee are seeking to enforce their security. The equipment lender has filed a motion with the court to appoint a receiver over both the operating company (Opco) that owns the pledged equipment and the holding company (Holdco) that owns the real estate. This would allow the receiver to manage and sell the assets of both companies in order to repay the outstanding debt.

In this case, Opco was a commercial marijuana operation that was unable to get off the ground due to its heavy debt load and startup problems.

Although the mortgagee began power of sale enforcement proceedings, they do not object to a receiver being appointed over the equipment only. The mortgagee wishes to continue its power of sale proceedings and opposes the receiver being appointed over the building. The mortgagee in possession is of the opinion that the equipment is attached to the building and cannot be removed.

The mortgagee concurred that the court has the power to assign a receiver over the property of both Opco and Holdco according to section 101 of the Ontario Courts of Justice Act. They stated that, if a receiver is appointed, the receiver needs to be a firm chosen by them.

Both the licensed insolvency trustee firm preferred by the mortgagee and the firm nominated by the equipment lender filed a consent to act with the court.

What are the conditions under which a receiver may be appointed?

The court looked at numerous factors in order to make a decision on whether or not to appoint a receiver, and if so, which one, including those that have historically in receivership in Canada cases been taken into account in such determinations:

  1. Although it is not essential for a creditor to establish irreparable harm if a receiver is not appointed where the appointment is authorized by the security documentation, the court considered if no order is made, will irreparable harm be caused?
  2. The size of the debtor company’s equity in the assets and the need for protection or safeguarding of assets during litigation are important factors to consider when assessing the risk to the security holder.
  3. The kind of property it is.
  4. The potential for the assets to be wasted or dissipated.
  5. The need to safeguard the property until a legal ruling is made.
  6. The parties’ respective balance of convenience needs to be considered when making the decision.
  7. Pursuant to the loan documentation, the creditor has the right to an appointment.
  8. Enforcing the security instrument when the security holder experiences or anticipates difficulties with the debtor.
  9. The principle of appointing a receiver should be approached with caution.
  10. The court will determine whether appointing a receiver is necessary to enable the receiver to carry out its duties efficiently.
  11. The effect a receivership order will have on the parties.
  12. The parties’ conduct.
  13. How long a receivership may last.
  14. The financial impact on the parties.
  15. The likelihood of maximizing return to the parties is increased.
  16. The goal of ensuring the smooth running of the receiver’s duties.

As everyone agreed that all assets of both Opco and Holdco should be sold to maximize recovery for all creditors, but cannot agree on the process by which that should be undertaken, resulting in the entire process being stalled, the judge was satisfied that it is just and convenient to appoint a receiver.

The court found that either proposed receiver was acceptable and decided that the receiver nominated by the mortgagee would be appointed by the court to administer all assets. The receiver would eventually come back to court with a sales plan to maximize the value of all the assets subject to the security of all stakeholders.

receivership in canada
receivership in canada

How the entrepreneur can avoid receivership in Canada

As a business owner, the way to avoid the receivership process is long before financial difficulties ever become serious financial problems. Here are a few tips on how to do just that:

  • Keep a close eye on your finances. This means regularly reviewing your income and expenses, and making sure you have a good handle on your cash flow.
  • Stay current on your bills. This includes not only making timely payments but also staying on top of any changes in your billing terms or amounts.
  • Keep good records. This means having up-to-date financial statements and documentation for all of your income and expenses.
  • Make a plan. If you do find yourself in a financial bind, have a plan in place for how you’ll get out of it. This may include negotiating with creditors, seeking new financing, or making cuts to your expenses.
  • Seek professional help from a licensed insolvency trustee with commercial insolvency experience. If your business is viable and you seek help early enough, there may be many options. The most common ones are refinancing with or without financial restructuring. Reviewing your business allows us to make restructuring recommendations allowing your viable company to become healthy and profitable once again.

Receivership in Canada summary & speak with a licensed insolvency trustee

I hope you enjoyed this receivership in Canada Brandon’s Blog.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

receivership in canada
receivership in canada

 

 

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BUSINESS BANKRUPTCY: SHOULD CANADA ADOPT A SATISFYING COMPLETE USA-STYLE PROCESS FOR SMALL BIZ RESTRUCTURING?

 

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fully operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

Business bankruptcy: Insolvency for business

Hundreds of thousands of small businesses around the world have been affected by the lockdowns caused by the Coronavirus pandemic. There have been many company closures, and others have been forced to restructure. Although restructuring may be painful, it is necessary if you want to come out from under crippling debt and grow your business.

Many businesses experiencing financial difficulties simply shut their doors rather than restructure. Most small businesses cannot reorganize their company debts under the Bankruptcy and Insolvency Act (Canada) (BIA) due to the high costs of administration. A small business owner does not benefit from spending money to have a business bankruptcy. It is therefore only possible to lock the door and give the key to one of the secured creditors, usually the bank or to the landlord.

Globally, small and medium-sized businesses play an important role. In 2019, I wrote a Brandon Blog post about business bankruptcy issues that US bankruptcy experts identified as problems for small business bankruptcy restructuring with Chapter 11 restructurings. This process was not working for these businesses. Chapter 11 restructurings are expensive, ineffective, and impractical. The US insolvency system therefore could not help many businesses in need of restructuring in the USA.

In this Brandon Blog, I provide an update on the successful experience and unanimous calls to extend the US subchapter V of Chapter 11 of the United States Bankruptcy Code. Therefore, I revisit the question as to whether such a small business bankruptcy tool should exist in Canada.

Business bankruptcy and Insolvency at a glance

Congress passed the Small Business Reorganization Act (SBRA) on July 23, 2019. On August 1, the Senate passed the bill. In August 2019, it became law.

SBRA makes business bankruptcy protection easier for small and medium-sized enterprises. Chapter 11, subchapter V of the US Bankruptcy Code (Title: Small Business Debtor Reorganization) is the result. Increasing its affordability will help save otherwise viable owner-managed businesses.

SBRA defines a small company as one with non-contingent debts of $2,725,625 or less, leaving out financial obligations to affiliates or parties not dealing at arm’s length, and which elects to be dealt with under the SBRA. A new subchapter V to Chapter 11 of the US Bankruptcy Code is included in the Act. In this new approach, small companies are able to restructure efficiently with greater ease and at a lower cost.

The primary purpose of this legal process is:

  • Secured creditors and unsecured creditors cannot lodge a Chapter 11 restructuring plan that it is prepared to support. Only businesses with debt problems can. In most cases, the company’s plan must be filed within 90 days of when it filed for bankruptcy protection.
  • To manage each case, trustees similar to those selected in a personal restructuring (Chapter 13) situation will be selected.
  • A creditors committee will not be established.
  • If the home loan/mortgage secured by the home was used to fund the business, the Chapter 11 plan can change the legal rights of the lender.
  • It is possible for a Court to approve a small business bankruptcy restructuring plan without the approval of any class of creditors. If the court is satisfied that all creditors are treated fairly and no creditor class is prejudiced, it will approve the restructuring plan,.
  • A restructuring plan must ensure that all earnings received during the restructuring will be available to fund the restructuring for a period of 3 to 5 years in order to be fair and equitable.

Consequently, it is the responsibility of the creditors to carefully review all cases filed under SBRA. The creditors should consult bankruptcy experts for guidance. Their role will be to ensure that restructuring cases are fairly examined by courts and that all creditors are treated equally. For those without the support of their creditors, this will be particularly true.

It will be very interesting to see if this new legislation accomplishes its goal of simplifying and reducing the costs associated with business bankruptcy restructuring for small businesses.

business bankruptcy
business bankruptcy

Business bankruptcy: The bottom line on the SBRA

This tool was successful in protecting small businesses from bankruptcy liquidation. Republicans and Democrats alike have embraced this obscure federal program that allows small-business owners to shed debt in bankruptcy protection so much, they are now considering extending it. Republican and Democratic agreement on anything is very rare these days.

In a Subchapter V bankruptcy, closely-held businesses can file for bankruptcy much more quickly and inexpensively than they would in a Chapter 11 bankruptcy. The government appoints a trustee with limited powers who assesses the company’s finances and helps reach a consensus with creditors. Rather than official creditor committees, there is only a trustee appointed by the government. Furthermore, company owners don’t risk losing control of their companies to creditors, a common outcome in bankruptcy.

When the pandemic ravaged thousands of small businesses, the government raised the debt threshold to qualify for Subchapter V to $7.5 million from $2.7 million and extended it an additional year. In the absence of another renewal, the higher limit will expire next month, shutting out thousands of companies that could benefit as they deal with new challenges such as supply chain issues and higher interest rates.

The main benefits of the SBRA business bankruptcy protection

Quick response

Since the program began, more than 2,800 cases have been filed. Restructuring advisers predict that number will rise as banks and landlords become more aggressive in collecting overdue loans and back rent.

Government assistance and eviction moratoriums have enabled small businesses to exist in limbo but that won’t last. Experts predict that more subchapter V filings will take place in 2022.

The American Bankruptcy Institute studies bankruptcy statistics. They state that the quick turnaround time of Subchapter V has attracted and will attract more filings.

Corporation envy

Some distressed corporations are so envious of Subchapter V that restructuring advisers are hunting in vain for strategies that might let their bigger clients qualify. For example, there was a company with 130 company-owned locations that filed for bankruptcy protection in 2020. It initially attempted to file individual brick-and-mortar locations under the program, before switching to a chapter 11 proceeding.

This business bankruptcy restructuring statute has proved to be a lifeline for smaller companies and should be extended.

business bankruptcy
business bankruptcy

The Canadian business bankruptcy and restructuring landscape

Canada lacks an equivalent streamlined corporate insolvency restructuring statute. There are two Canadian insolvency regimes: the Companies’ Creditors Arrangement Act (CCAA) and the BIA. For large corporations, the CCAA applies. The process is heavily governed by the courts. In my opinion, it would not be possible to sufficiently streamline the CCAA for small businesses to have enough staying power during restructurings under the CCAA to survive.

A streamlined restructuring process is possible under the BIA for small and medium-sized businesses. There was a streamlined restructuring process for individuals so that consumer bankruptcies can be avoided. These consumer proposals are found in Part I Division II of the BIA. So why not a special restructuring proposal section for smaller companies? I called it a new Part I Division III of the BIA in my earlier Brandon blog I referred to above – a general scheme for small business proposals (SBP) section of the BIA. The aim is to provide small businesses with the opportunity to restructure business debts on a cost-effective basis rather than to make Canadian bankruptcies the only real option to consider.

In the US, using a streamlined restructuring model has been so successful. That’s why I am bringing back my idea from 2019. I won’t repeat everything, however. You can see what my recommendations were by reading my blog – BANKRUPTCY EXPERTS WEIGH IN ON US & CDN SMALL BIZ RESTRUCTURING.

Business bankruptcy: The debtor (owes money) not the creditors (are owed money) would control the reorganization

An insolvent corporation, sole proprietors, or partnership that is set up to conduct business should be able to access the new SBP. The total amount of their debt should not exceed $1.5 million. Such a number is not based on any scientific calculations.

In order to determine an appropriate debt level, Statistics Canada could assess the average debt load of Canadian businesses. In this discussion, I’ll use the $1.5 million amount.

Loans from affiliates or from people with a non-arm’s-length relationship would not be excluded as in US law. A Canadian company’s first funding is usually provided by its owners. Chartered banks require owners to make a commitment with their personal assets before they are willing to lend. To get the business off the ground, the owners sacrificed their own money. Because they had to finance the company that way, I would not exclude that debt from the calculation.

The Canadian business landscape differs from the American one. We tend to be smaller in size. For non-arm’s-length debt to be excluded, the debt threshold would have to be lowered. Keeping that debt threshold in mind, let us include all debt, whether it’s secured or unsecured, related, or arms’ length.

This new SBP would not be applicable to people who are not conducting business in their own name. Those people will fall into either Division I or Division II restructuring proposals which include two mandatory credit counselling sessions.

Restructuring proposals can currently only be administered by a licensed insolvency trustee (formerly called a bankruptcy trustee). A licensed insolvency trustee is known as the Proposal Trustee under Division I Proposals. As part of Division II personal restructurings, they are known as the Administrator.

Therefore, I will call the Trustee the Small Business Administrator for the new SBP. As a result, it is obvious that it is the restructuring of a business that qualifies under Division III. The use of the word “administrator” is consistent with the words used by Parliament for consumer proposals. Again, this means that the Trustee is administering a streamlined restructuring for small businesses.

The main points I recommended in my earlier blog in a Canadian small business streamlined restructuring statute include:

  • Currently, it is possible for a company or person to begin the restructuring process by filing either a Notice of Intention to Make A Proposal (NOI) or a Proposal itself. Regardless of the filing method, there is a 10-day limitation period under which the debtor must submit a cash-flow statement that has been reviewed and approved by both the company or person and the Trustee. A company or individual filing an NOI then has an additional 20 days (30 days after the filing date of the NOI) to file a Proposal (unless the court extends the time).

I propose extending the deadline for filing a Proposal from 30 days to 90 days after the filing of an NOI, without the need to go to the Court for an extension. As a result, the business should have enough time to get all of its tax and corporate filings up to date and, hopefully, avoid the need to adjourn the meeting of creditors.

  • A creditor would file a proof of claim in the same way they do now in a BIA Proposal.
  • There is a concept of deemed creditor approval and deemed court approval in the current consumer proposal legislation. A creditors’ meeting is not necessary unless creditors holding 25% of the proven claims request it. In addition to the proof of claim process, creditors receive voting letters to cast their vote when they submit a proof of claim. If there is no obligation to convene a meeting, a consumer proposal is considered accepted.If a consumer proposal is either accepted or deemed accepted by the creditors, the Trustee Administrator will probably not need to seek approval from the Court. There are no deeming provisions in corporate restructuring, either for creditor acceptance or for court approval. The new SBP section should include similar provisions regarding creditor acceptance and court approval. This would save time and money, thus enhancing efficiency.
  • The Meeting of Creditors if required, would be held 21 days after the Trustee Administrator recognizes that the small business restructuring did not receive deemed approval.
  • When creditors fail to vote in favour of a Division I Proposal or when the court does not approve it, it is automatically deemed an assignment in bankruptcy. This does not apply to consumer proposals. Debtors return to their normal state without creditor protection after an unsuccessful consumer proposal attempt.For the new streamlined business restructuring proposal law, if creditors fail to accept or the court does not approve the restructuring plan, then that does not automatically mean there is a bankruptcy. The debtor small business would simply return to its normal unprotected insolvent state and must defend itself against creditors.A voluntary assignment into bankruptcy may result, but not automatically. A bankruptcy proceeding does not make sense in certain corporate situations. If a chartered bank holds security over all assets it will enforce its security through a receivership, this is especially true.

Business bankruptcy summary

A streamlined small business bankruptcy protection section is working in the US and both Republicans and Democrats want it extended and made to be able to handle even more bankruptcy cases. So why should we not have one in Canada too? I know that it could work.

I hope you found this business bankruptcy Brandon Blog informative. Although nothing is guaranteed, managing your debt in a way that will allow you or your company to be able to afford it, will lead to your financial success. It will also give you the best shot at having a financially stress-free life.

Are you or your company in financial distress and a debt crisis? Are you embroiled in costly litigation or a crushing debt load and need a time out in order to restructure? Do you not have adequate funds to pay your financial obligations as they come due? Are your credit cards maxed out? Are you worried about what will happen to you? Do you need to search out easy-to-understand debt solutions and realistic ones for your family debt problems? Is your company in financial hot water?

Call the Ira Smith Team today. We have decades and generations of experience assisting people looking for life-changing debt solutions through a debt settlement plan and AVOID the bankruptcy process.

As licensed insolvency professionals, we are the only people accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a Government of Canada-approved debt settlement plan to do that. It is an alternative to bankruptcy. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fully operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

business bankruptcy
business bankruptcy
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4 MAIN REASONS FOR BUSINESS FAILURE: INSPIRING WAYS ENTREPRENEURS AND COMPANIES FIX THEIR BUSINESS PROBLEMS

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fully operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

Main Reasons for Business Failure: Introduction to reasons for failure

There are many reasons why businesses fail. One of the things a company needs to continue operations well into the future is a strong management team. Business owners should be comfortable with how each manager understands the business’ operations, current and future employees, and products.

Entrepreneurship is inherently risky; it is not for the fainthearted. Before offering products or services to customers, a company’s business model and infrastructure should be formulated, and revenue streams should be realistically projected well in advance.

In this Brandon Blog, I discuss the 4 main reasons for business failure that I have seen over the years in my role as a licensed insolvency trustee dealing with corporate restructuring and corporate business failures.

Main Reasons for Business Failure: Why do most businesses fail?

What percentages of businesses fail? About 66 percent of new businesses survive for two years or more, half survive for four years or more, and only 40 percent survive for six years or more. Many of these issues are overlooked, ignored, or neglected, resulting in them becoming just another statistic. It does not matter how many times you failed before you had a huge success. Failure teaches you what to avoid.

Building a substantial business is no easy feat. Businesses are built on value. It is best to find a way to under-promise but over-deliver in order to add value to any business.

Among the most common reasons businesses fail are:

  1. not having sufficient funding;
  2. having a poor management team with a lack of experience;
  3. a flawed business model; and
  4. a flawed marketing plan and/or a failure to market effectively to existing and potential customers.

    main reasons for business failure
    main reasons for business failure

Main Reasons for Business Failure: Financing Hurdles

Chances are if you’ve been in business for a few months or longer, you’re experiencing some financial challenges and a lack of business funds. Marketing, sales, and customer service may require more capital. Payroll, inventory, and other expenses may require additional working capital as well.

A business loan from a bank can solve financing issues. Before applying for a loan, make sure you know your company’s financial situation. If you can’t accurately estimate where your business will be after a loan, this poor financial management will probably make your business end up worse off than if you hadn’t taken the loan.

Despite the availability of angel investors, venture capitalists, and conventional bank loans for small businesses, not all companies have the revenue stream, positive cash flow or business growth trajectory to secure financing from them. This is the 1st of the main reasons for business failure.

Main Reasons for Business Failure: Inadequate management

The managers of a business will quickly lose credibility with their staff, their suppliers, their customers, and even the general public if they are incompetent. Even if a manager receives training, mentoring, coaching, etc., before he or she starts managing people and money, if he or she doesn’t master the trade, chances are the person won’t have a successful business.

A business can fail due to poor management. Business failures are primarily caused by inadequate management, in my opinion. Management is inadequate if it does not understand the needs of the business. A lack of passion within management is a sure business killer.

It is inevitable that there will be an error the first time management delegated a major task. One person cannot handle all the decisions. The tendency is to assume that others will take care of the details while we delegate responsibility. You can use this for simple tasks like making coffee, cleaning toilets, and filing taxes. Business planning, cash flow modelling, establishing business plans and marketing plans are ineffective with this program.

Failing businesses are frustrating. It takes a lot of time and effort to build a business from scratch. It can be devastating to suddenly lose everything. Even your dreams might be dashed.

You must learn how to manage yourself and your business if you want to avoid this 2nd of the main reasons for business failure. Many business owners don’t realize how crucial it is to understand all aspects of running a business.

main reasons for business failure
main reasons for business failure

Main Reasons for Business Failure: Ineffective Business Planning

Having come up with your business idea and have already started your business, you should focus on developing quality relationships with your clients and employees. Understanding each employee’s strengths and weaknesses and discovering what motivates them is key. You will then be able to create a work environment tailored to the specific skills of each member of your team.

In order to achieve success, a team must have individuals who share a common goal; however, you must determine if your employees possess the right mix of qualities. Creativity, analytical skills, interpersonal skills, motivation, and communication abilities are among them.

Do you know what makes your business unique? What makes your customers choose you over your competitors? A good business plan must take all of these factors into account.

It is common for businesses to attribute their failure to external factors, such as competitors, the economy, and regulations. Although these factors are important, they are not the only causes of business failure. This 3rd of the main reasons for business failure is internal.

Businesses fail for a variety of reasons. A poor business plan, or a total lack of planning, can easily lead to it, but it is harder to prevent it completely. Business failure comes in many shapes and sizes. You could lose money, customers, your business, your product, your market, or you could fail to launch. It can all be the result of misunderstanding your product and market, caused by poor business planning.

Main Reasons for Business Failure: Marketing Mishaps

The 4th reason of the main reasons for business failure that I wish to discuss is marketing mishaps. A business needs to plan ahead for marketing. A marketing budget and return on capital should be considered by marketers and form part of every marketing strategy and business plan. Any business should allocate a budget for marketing if they hope to succeed. Getting this wrong is the 4th of the main reasons for business failure.

The success of marketing campaigns is also dependent on realistic projections for target audience reach and sales conversion ratios. In the long run, businesses that fail to understand and implement these aspects of sound marketing strategies concerning their potential customer base will be less successful than those that do.

Your business will fail if you can’t connect with your target audience. Without the ability to connect with your demographic, you are not only unaware of your potential consumer’s wants and needs, but also oblivious to how to best help them. You want to know what they want, rather than just what they need. What are they really looking for? Are they looking to evoke an emotion? Are they looking to achieve a certain status? Do your products or services help them solve a problem?

If you’re not addressing their pain points, then you probably do not understand the consumer very well. You cannot sell until you truly understand what they need. Take advantage of focus groups, market surveys, email campaigns, and direct phone calls to understand and connect with your target audience. Discover them in every detail. By doing so, your marketing plan will succeed.

main reasons for business failure
main reasons for business failure

Main Reasons for Business Failure: Summary

I hope you found these main reasons for business failure Brandon Blog informative. Although nothing is guaranteed, guarding against these 4 main reasons for business failure will increase your chances for business success. It will also give you the best shot at having a sustainable business model.

Are you or your company in financial distress and a debt crisis? Are you embroiled in costly litigation or a crushing debt load and need a time out in order to restructure? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you in retirement? Do you need to search out what your debt relief options and realistic debt relief solutions for your family debt are? Is your company in financial hot water?

Call the Ira Smith Team today. We have decades and generations of experience assisting people looking for life-changing debt solutions through a debt settlement plan and AVOID the bankruptcy process.

As licensed insolvency professionals, we are the only people accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government-approved debt settlement plan to do that. It is an alternative to bankruptcy. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fully operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

main reasons for business failure
main reasons for business failure
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TO CALCULATE HST IS EASY: PAYING IT AND SOLVING OTHER GIGANTIC COVID-19 BUSINESS DEBT PROBLEMS ARE NOT

calculate hst
calculate hst

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

Calculate HST and Canadian small business

I read two business reports this week, one from the Canadian Federation of Independent Businesses (CFIB) and one from the Canada Revenue Agency (CRA). They both contain troubling information. The combined effect is bad news.

CRA reports that businesses owe $14.3-billion in unpaid sales tax. CFIB estimates that small businesses in Canada owe a collective $139 billion in debt due to the COVID-19 pandemic as of August 2021.

Almost three-quarters of small businesses that took on debt expect it to take more than a year to repay. For businesses in the hospitality sector, the number jumps to 87 percent, with most saying it will take longer than two years to pay it off. Nearly a quarter worried about ever being able to pay off their debts.

These two reports clearly illustrate that one of the debts Canadian business owners have amassed is collected but unremitted Harmonized Sales Tax (HST). This Brandon Blog will not only describe how to calculate HST but also explain what will happen if you do not pay it over to CRA.

Calculate HST Amounts in Sales and Purchase Documents

You must register for GST/HST if you bill more than $30,000 per year. You do not need to register if you don’t exceed this amount. The HST calculation varies according to the province or territory you operate in. Several provinces have harmonized their provincial sales tax with the Goods and Services Tax (GST) and charge HST on taxable goods and services. GST and provincial sales tax have to be charged in provinces with PST; GST is calculated on the price of each taxable sale of goods or services before PST is added.

HST is calculated on the revenue from each taxable sale that is collectible or collected. The HST on each taxable supply produces an input tax credit that can then be deducted from the HST owing. HST on taxable sales less input tax credits from taxable supplies is the net amount of HST due or refund for the period. Your HST return may need to be filed annually, quarterly, or monthly, depending on how large your business is as measured by total sales and therefore sales taxes also.

CRA has created an HST calculator to help you calculate HST.

calculate hst
calculate hst

Calculate HST is just one part of small business debt and the COVID-19 impact

In their August 2021 research study, the CFIB uncovered a variety of issues that show the Canadian small business sector is struggling. They found:

  1. It is estimated that 71% of Canadian small business owners have taken on new debt loads to deal with the effects of the COVID-19 pandemic.
  2. CFIB estimates that total Canadian small business debt loads related to the coronavirus is around $139 billion, and 76% of businesses that took on debt said it would take them more than one year to repay it.
  3. Governments should continue business relief measures as government support is winding down since Canadian small businesses are carrying such a burden and are having difficulty regaining their footing. Rent assistance is one such support program.
  4. Only 39% of small businesses in Canada are currently making sales they consider to be normal for this time of year, despite recent improvements. Most continue to experience declines in revenue.
  5. About 17% of small businesses in Canada have sales that are half or less of what they should be.
  6. Four in five businesses are using one or more sources of funding to cope with COVID-19.
  7. In the arts, recreation & information, and hospitality sectors, 9 of 10 businesses are using some federal, provincial, or other funding to cope with COVID-19.
  8. In three out of five cases, government relief programs replace less than 30 percent of the COVID-19 shortfall.
  9. Scaling back federal relief programs comes too quickly for most business owners.
  10. According to half of the entrepreneurs, repaying their debt is the biggest challenge their business faces on the road to recovery.

Now for the CRA news release that has to do not only with how to calculate HST, but who is and is not paying their HST.

How to calculate HST is only the first part: Businesses owe $14.3-billion in unpaid sales tax, Canada Revenue Agency says

The number of companies falling behind on federal sales tax remittance indicates financial distress, as companies battle the pandemic and supply chain issues. In March 2020, when pandemic restrictions began, the nation owed $11.5 billion in GST and HST to the government. By September 2021, it owed $14.3 billion, an increase of 24 percent over that amount.

As of 2020-21, the CRA has received about 500,000 fewer sales tax returns than the year prior. There were approximately 105,000 fewer sales tax filers, the agency reports. Despite the fact that so many businesses are still operating at some level, they are not even bothering to file their tax returns.

Most businesses file their HST returns on either a once-a-year reporting period or on a quarterly reporting period. Some larger companies report and remit monthly. Quarterly remitters with annual taxable income between $1.5 million and $6 million showed the largest drop in returns by reporting period.

Therefore, it is clear that Canadian businesses are using the tax amounts collected as another source of financing since the pandemic hit. There is no mention of HST in the CFIB study. HST collected but not remitted was not even considered as a source of financing, which it is.

calculate hst
calculate hst

Calculate HST but if you don’t pay, it is a deemed trust

Regardless of the business legal structure, the GST/HST amounts you collect from your customers are considered a deemed trust in favour of the federal government. In an operating business, it takes precedence over whatever debts you owe to other creditors, including secured creditors. The CRA can still get payment from your bank even if the bank does not lend money to you. They can go to the bank where you keep your business funds and get payment there. All that is explained in my blog post about Canada v. Toronto-Dominion Bank.

However, the CRA has the following options:

  • garnish bank accounts, accounts receivable, and all other sources of income;
  • confiscate and sell assets; and
  • pursue other legal remedies.

In my experience, CRA does not typically seize and sell assets. Instead, they pursue garnishments. As in the TD Bank case, they can also just go to whichever of the financial institutions the business banks with and demand the HST funds that have been deposited. When a company owns real property, they may get a judgment from a federal court without notifying the owner, and register that judgment against the title to the real property. Upon refinancing or selling the property, the business owner is required to repay the judgment, plus interest.

Calculate HST: Are HST and COVID debt crushing the life out of your business?

In an environment hamstrung by manufacturing and shipping backlogs, businesses may experience supply shortages and higher delivery costs. Even though paying your bills may be the most emotionally satisfying course of action, it may not be the most practical.

It’s better for your business and your employees if you seek professional advice if you believe that you cannot make next month’s payroll. The following issues cannot be ignored: lenders demanding loan repayment, landlords threatening to end your lease or seize your assets as payment, suppliers cutting off credit or halting deliveries.

The first thing I do as a licensed insolvency trustee is to determine what stage of the business the company is at. The stage the business is at is crucial for me to understand. The choices are:

  1. Solvent and viable.
  2. Solvent but not viable.
  3. Insolvent and viable.
  4. Insolvent and not viable.

The business can probably restructure with some simple changes to its operations if it is solvent and viable. Insolvent companies that are still viable may be restructured under the provisions of the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act.

The business can be liquidated or sold if it is not viable, but it is solvent. If it is insolvent and not viable, we are probably looking at bankruptcy or receivership.

A deep dive is required to find out what the correct answer is. For sure I would need to calculate HST collected but unremitted, as that is a deemed trust claim, apart from one exception I describe below.

calculate hst
calculate hst

Calculate HST: What happens to the deemed trust claim in a bankruptcy?

The Excise Tax Act (ETA) defines GST/HST as a deemed trust claim. Under the ETA, a deemed trust claim will include amounts for GST/HST that was collected by the business but not paid to the CRA. There is only one exception. A bankruptcy of the business will rearrange the priorities. In a bankruptcy, the deemed trust GST/HST claim becomes an ordinary unsecured claim. There is no statutory authority for this same outcome in a BIA restructuring Proposal. However, sometimes, as an administrative issue, CRA will allow this treatment also.

According to one school of thought, unremitted amounts included in deposits or loan repayments to a financial institution before bankruptcy continue to be deemed trust claims. Nonetheless, the Supreme Court of Canada clarified GST/HST deemed trusts and secured creditors’ responsibilities for funds received.

The Callidus Capital Corporation v Her Majesty the Queen decision was reversed by the Supreme Court of Canada in 2018. For secured creditors, the decision that the deemed trust provisions of the ETA become inoperative on bankruptcy, and therefore secured creditors are not liable to account for proceeds received from a debtor pre-bankruptcy, is significant.

Calculate HST: GST/HST liability For directors

ETA section 323 increases the CRA‘s power to collect unremitted GST/HST when efforts to collect against corporations prove futile. As a result of the failure of the corporation to remit GST/HST, its directors will be liable for any tax the corporation should have remitted. The directors are jointly and severally liable for the corporation’s unremitted GST/HST.

CRA has the right to look to the directors whether the corporation is in bankruptcy or not. When we calculate HST and discover a company owes net HST, there is another downside to bankruptcy. CRA may now want to claim on the directors sooner because of the HST liability becoming unsecured.

calculate hst
calculate hst

Calculate HST summary

I hope you now see why I feel the combination of the CFIB survey results and the announcement from CRA spells upcoming trouble for Canadian businesses. I also hope you found this calculate HST Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Even though we are licensed insolvency trustees, we have found that not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation. We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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Brandon Blog Post

CEBA UPDATE TODAY: OUR SIMPLE HAPPY GUIDE TO CEBA LOAN TERMS

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

ceba update

Canada Emergency Business Account (CEBA)

The CEBA is a unique program established by the federal government to help Canadian businesses adversely impacted by the lockdowns and other business interruptions produced by the COVID-19 pandemic. The program was originally developed to help companies and non-profits that need additional funding and some business relief. Absent this Canada Emergency Business Account program, the funding that might be available from financial institutions would not address the Canadian business realities of then or unfortunately, still now.

In my April 13, 2020, Brandon Blog “COVID-19 BUSINESS SUPPORT: CANADA EMERGENCY BUSINESS ACCOUNT REVIEW“, I described the CEBA program. Since then there has been a CEBA update or two. As most of us understand, the economic situation is still refraining from doing much better. I am currently being contacted by companies who got CEBA funds yet still are insolvent and feel they will either need financial restructuring or bankruptcy. The CEBA funds were valuable yet were insufficient now that we are in the 14th month of this health and wellness pandemic.

In this CEBA update Brandon Blog, I want to go over the most up-to-date upgrade on CEBA and answer several of the more typical inquiries I am now being asked when business owners consider an insolvency filing for their company.

The easiest way to answer what the CEBA update is will be to start fresh and describe what the program was back when first announced and what it is today after the CEBA changes.

CEBA update: Original CEBA eligibility requirements

The original CEBA loan requirements went like this. The CEBA online application process showed up on April 9, 2020. PM Trudeau introduced this brand-new program as part of the federal government’s general program to supply COVID-19 business operations assistance to Canadian companies. At that time, the program saw financial institutions providing $40,000 in financing to each qualifying company, guaranteed by the federal government.

The loans were processed and financed by the Canadian chartered banks. Despite its name, the Canada Emergency Business Account is actually not a business account. It is a non-revolving term loan. It is government-guaranteed lending of $40,000, The CEBA are interest-free loans that are not due for repayment until December 31, 2022. If not repaid by then, interest will then accrue.

The CEBA was developed by the Canadian government to supply COVID-19 business operations assistance to small and medium companies and also non-profit organizations with their most immediate cash requirements during the COVID-19 dilemma. The process was all online. The online application process included a CEBA pre-screen tool. The applicant went through the questions and submitted the required information. The system then:

  • provided a CEBA pre-screen tool reference number;
  • told you that the application was submitted through your bank;
  • said your bank really has nothing to do with the application process; and
  • confirmed that you will get an answer within 7 to 10 business days.

The requirements for approval for the $40K CEBA were not difficult to meet. The CEBA was readily available to incorporated companies and non-profits who relied upon their respective CRA Business Numbers and had an operational Canada Revenue Agency Business Number (BN) on or before March 1, 2020. The company or non-profit also needed to be businesses with payroll and have a total 2019 payroll filed under the Canada Revenue Agency Business Payroll Number (BN), between $50,000 and $1 million.

ceba update
ceba update

CEBA update: Is my business eligible for CEBA and its expansion?

The program requirements have since been amended since the original CEBA came out. The maximum loan balance, other program details and eligibility criteria have changed. To qualify as one of the eligible businesses for a $60,000 CEBA the applicant needs to be an operating company that is a proprietorship, partnership or a Canadian-controlled private corporation that was in operation in Canada on March 1, 2020.

Other types of entities are not qualified for the $60,000 CEBA or $20,000 Canada Emergency Business Account expansion financing. If you previously were approved for the original $40,000 CEBA, you know that you can qualify now for the $20,000 CEBA expansion from the initial $40K amount already funded. So now sole proprietors operating a sole proprietorship and partners in business partnerships also qualify. Family-owned corporations always did and continue to qualify. It seems that the non-profit enterprises do not for the CEBA update program.

The CEBA update application process now adheres to 1 of 2 streams: (i) the Payroll Stream (To be considered as eligible businesses, applicants that are businesses with payroll paid under the Canada Revenue Agency Business Payroll Number (BN), in the 2019 fiscal year between a lower limit of $20,000 to a maximum limit of $1,500,000) or (ii) the Non-Deferrable Expense Stream (Applicants who are businesses with payroll paid under the Canada Revenue Agency Business Payroll Number (BN), of $20,000 or less in the 2019 calendar year).

The actual wording in the program requirements is expressed in a funny way. It talks about having paid employment income, rather than a payroll expense as I have described it above. I guess Parliament wanted to emphasize the fact that the money should be used to including employing Canadians so that they will earn the employment income being paid by the business payroll!

Every applicant needs to meet the following eligibility criteria:

  • CRA Business Numbers – has an active business account with a CRA Business Number (BN) registered on or before March 1, 2020.
  • Has an open business chequing/operating account with the proposed lending institution they are applying through at the time the application process is put into play. Examples would be a CIBC Business Operating Account, an RBC Business Deposit Account, or a similar account at any of the other Canadian chartered banks. If you have a Canadian operating business, it should not be too hard to meet this qualification of having an active business chequing account.
  • Those making an application for the complete $60,000 CEBA, have not previously utilized the Canada Emergency Business Account Program and also will not request support under the CEBA Program at any other financial institution.
  • Plans to stay open or to go back to opening up as soon as restrictions are lifted.

CEBA update: Non-deferrable expense stream eligibility

If you are applying under the Non-Deferrable expenditures stream, you have to, in addition, comply with some extra eligibility criteria as follows:

  • Having verifiable non-deferrable expenses between $40,000 and $1,500,000. Eligible non-deferrable expenses can consist of operating costs like property rental fees, real estate tax, insurance policy protection, and utilities. The government says that expenditures for such non-deferrable operating expenses will certainly undergo confirmation and audit, presumably by Canada Revenue Agency.
  • Submitted an income tax return with the CRA with a tax year ending in 2019 or, if its tax return for fiscal 2019 is not yet due for filing, 2018.

As always, as soon as you have actually finished the online application via your bank, the Government of Canada will examine the application as well as alert you and your bank of the approval or decline of the funding. Your financial institution will put the funds right into your business chequing/ operating account if you are successful.

So this is how the CEBA expansion has changed the eligibility requirements resulting from the CEBA update. It is obvious that the government wants to help businesses have the necessary cash on favourable terms to make necessary expenses for business purposes.

The CEBA update has also extended the CEBA Application Period. The CEBA update also has now extended the to receive applications from businesses to June 30, 2021, (proposed in the recent Budget to be extended to the Fall of 2021) to request a $60,000 CEBA or the $20,000 expansion at their financial institution. Unless the government announces an extension to this date, time is running out.

ceba update
ceba update

CEBA update: How many businesses have applied for CEBA?

Here are the statistics of the use of the CEBA program during this difficult time as of this date:

  • 866,750 businesses were approved for CEBA loans;
  • 532,899 businesses were approved for the CEBA update expansion; and
  • funds were loaned as a result of the above total $46.56 billion.

What are the CEBA loan terms and is there any CEBA event of default?

The most well-known CEBA term loan provisions are:

  • The CEBA program supplies access to a $60,000 business loan.
  • 0% interest till December 31, 2022.
  • No principal payments until after December 31, 2022.
  • The loan is fully open so, all or part of the non-forgiven portion can be repaid prior to January 1, 2023.
  • Full repayment by December 31, 2022, will only require the borrower to repay $40,000 of the total $60,000 loan for it to be considered fully repaid. Therefore, there is loan forgiveness of $20,000 if repaid by the end of 2022. The federal government is actually calling this loan forgiveness for early repayment.
  • The interest rate on any outstanding balance after December 31, 2022, is 5% per annum during the “Extended Term”. The Extended Term runs until December 31, 2025. So after the interest-free period, the Extended Term converts it to a 3-year term loan after December 31, 2022, the Initial Term Date. During the Extended Term, monthly interest payments are required. The full principal balance of $60,000 is due no later than December 31, 2025.

There are some CEBA update loan events of default as follows:

The events of default are quite simple. The bank may need you to pay back the loan, upon the incident of any kind of among the following events of default:

  • you fail in paying any amount due under the CEBA funding;
  • you don’t pay according to its terms any other non-CEBA financing outstanding to that same financial institution;
  • you fail to comply with any one of the terms of the CEBA agreement (which really revolves around interest and repayment), you make any false or deceptive statements to the bank, including without restriction, in your CEBA application;
  • the business commits an act of bankruptcy or becomes insolvent; or
  • the business is placed in receivership.

It would appear that the only remedy for the bank upon the default of the borrower is to advise that full repayment is due immediately. There are no other specifics in the CEBA loan agreement providing the lender with any other powers.

There is no personal guarantee attached to this CEBA loan. However, there is some language that speaks to the CEBA agreement being binding on “your heirs, your successors and personal representatives – including executors and administrators”. This language did not make any sense when only corporations could apply in the beginning. The language now makes sense because the CEBA update created the CEBA expansion to include sole proprietors and partners, who of course, are people, not companies.

I have received some calls from entrepreneurs who applied for and obtained the CEBA $60K loan expansion funds. Their company is still in financial trouble; it was just able to hang on longer. The business owners want to know if their company has to enter into an insolvency proceeding, what is their risk as it relates to the CEBA repayment?

To date, I have advised them of my understanding of the CEBA loan terms and CEBA loan events of default as outlined above. I also caution entrepreneurs that the company books and records should be able to show both the receipt of the CEBA interest-free loan and that the funds were used for appropriate business purposes.

ceba update
ceba update

CEBA update summary

I hope you enjoyed this CEBA update Brandon Blog post on the current rules for the Canada Emergency Business Account. This is one of several government programs to hopefully allow business continuity to survive.

Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

ceba update
ceba update
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