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FINANCIAL AWARENESS MONTH: UNDERSTANDING FINANCIAL LITERACY TO MANAGE MONEY WISELY

<h2Financial Awareness Month

Financial Awareness Month: Introduction

In today’s world, it is essential to have a good understanding of money matters and exactly how to handle your money carefully. November is Financial Awareness Month in Canada. In the United States, April is Financial Literacy Month. These two months chosen as Financial Awareness Month does not make any sense to me. At the beginning of every New Year, many people resolve to better themselves. One common resolution deals with gaining more financial literacy or reducing the amount of debt a person carries. So shouldn’t January be Financial Awareness Month?

In this Brandon’s Blog, we want to help raise the public awareness of Canadian financial literacy. We try to talk about the importance of financial literacy by covering the following money tips:

  • How Financial Awareness Month emphasizes understanding financial literacy for prudent money management.
  • Key aspects of financial literacy include distinguishing needs from wants, the importance of budgeting, wise debt handling, and saving for a secure future.
  • The significance of financial literacy for empowerment, achieving goals, and the basics of managing money effectively.
  • The power of compound interest, the role of different account types (savings, chequing, credit cards), and the need for consistency in financial planning.
  • Overall, Canadian Financial Awareness Month guides individuals toward a path of financial literacy and concludes by emphasizing its importance.

By the end of this article, you will be geared up with the needed tools to make informed financial choices and develop a safe future on your own.

Financial Awareness Month: Understanding the Difference between Needs and Wants

One way to show economic awareness is with story-telling. It is additionally an excellent way to show youngsters. The perfect time to begin your financial journey and achieve financial literacy to make better financial decisions is when you are young. So below is our Financial Awareness Month way to comprehend the difference between wants and needs.

For individuals like Sarah, it continues to be necessary to juxtapose their needs versus their wants. We need to be critical of what adds to health and basic survival and what engenders joy and satisfaction. By doing so, it can create judicious financial paths, thus guaranteeing a secure and prosperous future.

At daybreak, the sun’s radiant beams adorned the sky, setting the stage for Sarah’s jubilant awakening on the most exceptional day of the entire year – her birthday, a day bathed in splendour! An exhilarating surge of anticipation coursed through her veins, propelling her swiftly downstairs. Each pulsation of her heart carried the palpable thrill of what lay ahead. Like a harmonious chorus of affection, birthday greetings from her devoted parents and heartfelt presents from her beloved friends and family shimmered akin to celestial bodies, enveloping her in a tender embrace. And as the pinnacle of it all, an enticing breakfast awaited her, a sumptuous banquet befitting royalty.

As Sarah and her parents head out to the toy store, Sarah’s father starts to explain the relevance of distinguishing between needs and wants. He pointed out that needs, such as food, water, clothes, and a roof over your head, are important for survival, whereas wants, although not essential, can bring happiness and contentment.

Infused with the enchantment of her birthday, Sarah embarked on a spree of shopping, her thoughts teeming with vivacious hues. She delved profoundly into the recesses of her wants and yearnings, unravelling a newfound comprehension of her financial expedition. With every step, her assurance ascended, enabling her to make astute selections. Resolute in seizing every available prospect, the cosmos appeared to whisper boundless prospects into her eager receptiveness. With inexhaustible vitality and resolute determination, Sarah ventured forth into the realm, poised to inscribe her effervescent dreams upon life’s intricate canvas.

Sarah, at the ripe age of ten, radiated sheer delight while commemorating her birthday. Her parents she adores had pledged an extraordinary gift—a fresh, handpicked toy of her preference—eliciting an eager anticipation to uncover its identity.

Entering the toy emporium, Sarah basked in contentment regarding all her possibilities. Methodically weighing her options, she meticulously selected items aligning with her wants within the financial bounds set by her parents. Her father commended her fiscal acumen, affirming, “Impressive Sarah”.

At that same moment, Sarah began to examine her genuine needs versus cravings. She discerned that, notwithstanding her yearning for that new doll, a more pragmatic choice was to leave the toy store in search of a fresh pair of shoes, given the discomfort stemming from her current footwear. She realized that distinguishing between desires and necessities marks the primary stride toward creating an astute financial ecosystem.

When she told her parents what she was thinking, her father said “Sarah,” her papa inquired, “you have just stopped yourself before deciding on a toy to think about your true needs versus your wants?” Considering for a moment, Sarah responded, “I need nourishment, hydration, and a place to live. I also need to have a comfortable pair of shoes for when I walk to and from school. However, I want the unique toy showcased on the television.” Her papa responded sagely, remarking, “Indeed, Sarah. Prioritizing requirements over desires is a critical aspect of our decision-making.”

In the ensuing weeks, Sarah continued to refine her prioritization of necessities and demands. Accepting the understanding that not all needs held equal significance for her total health, she embraced a conscientious approach to expenditures, assigning her allowance deliberately. Sarah was well on her way to acknowledging all her desires, but to focus her spending plan and to be monetarily accountable.

A father and daughter playing after he taught her basic financial literacy tips.
Financial Awareness Month

Financial Awareness Month: The Importance of Budgeting

In the hamlet of Thriftyville, a tale unfurled about a young inhabitant named Lindsay. Lindsay epitomized diligence, nurturing aspirations of fiscal fortitude and triumph. Alas, despite her toil, she grappled incessantly to meet her needs, perennially falling short of the resources necessary to meet her goals.

A pivotal moment dawned upon Lindsay when she resolved to emancipate herself from the cycle of paycheque constraints and perennial financial anxieties. Determined to metamorphose her circumstances for better financial outcomes, she embarked on a quest to seize command over her finances. It was then that she unearthed the potent tool of budgeting.

Crafting a budget transcended mere numerical exercises—it epitomized a transformative ethos. By orchestrating expenditures in alignment with earnings, she orchestrated a symphony ensuring every cent found purpose and she was able to begin living within her means. It resembled charting a course, endowing her finances with a navigational blueprint, directing them precisely toward their intended and necessary destinations.

Lindsay, emboldened by a newfound resolve, seated herself at her kitchen table, meticulously listing her diverse streams of income. Her list encompassed her steady salary, occasional side endeavours, and sporadic monetary gifts from her doting parents. A semblance of optimism flickered within as the numbers aggregated—a faint whisper of possibility that perhaps this approach to budgeting held promise.

Subsequently, Lindsay meticulously cataloged her outflows, meticulously categorizing them into segments—rent, utilities, groceries, transportation, income tax and leisure. The revelation of where her finances ebbed was illuminating. It dawned upon her that her expenditures in dining out and retail therapy eclipsed her initial estimations.

Armed with a comprehensive picture of her earnings and spending, Lindsay initiated adjustments. She opted to curtail her dining escapades, embracing the culinary arts within her abode. Additionally, she terminated her dormant gym subscription, opting for invigorating runs through the verdant park instead. These minor alterations facilitated the liberation of surplus funds, earmarked for her savings goals.

Among Lindsay’s aspirations loomed the ambition to nurture an emergency reserve. The apprehension of unforeseen job loss or an unscheduled emergency had perennially plagued her thoughts. Entrusting her budget to allocate a designated sum each month toward this contingency fund furnished her with a semblance of solace, a shield against uncertainties, fostering a tranquil state of mind.

Over time, the fruits of Lindsay’s budgeting labour began to manifest. She discerned a notable shift—no longer tethered to credit cards to bridge fiscal gaps, she accelerated the payment of her debts. Furthermore, a newfound mastery over her finances imbued her with the fortitude to resist impulsive expenditures.

Arguably the paramount boon of her budgeting journey was the power to prioritize her expenditures. Lindsay unearthed the revelation that desires did not always equate to necessities. Allocating her funds exclusively to indispensable items empowered her to direct her gaze steadfastly toward long-term objectives—such as homeownership and retirement savings—cultivating a sense of purpose in her fiscal stewardship.

Lindsay’s newfound prowess in finance acted as a catalyst, sparking a fire of fiscal confidence among her peers. Witnessing the transformative effects in her financial life, they aspired to embrace that same liberation and serenity. Lindsay emerged as an ardent advocate for budgeting, a zealot eager to disseminate her wisdom and insights to anyone receptive.

In summation, budgeting transcends the realm of mere arithmetic and fiscal pruning. It embodies the assertion of authority over one’s financial trajectory, orchestrating deliberate choices with money. Through a budget’s prism, one can delineate priorities, circumvent gratuitous debt, and pave a path toward future aspirations. Lindsay’s journey stands as a testament—akin to her, you possess the potential to rewrite your financial narrative and craft a tale of triumph.

A confident woman feeling very happy after learning financial literacy.
Financial Awareness Month

Financial Awareness Month: Debt and Borrowing Wisely

In the quaint township of Financia, dwelled a diligent young soul named Pamela. Her ethos revolved around diligent toil and a creed of fiscal prudence. Pamela adhered staunchly to the doctrine of living within her means, always circumspect about engaging in indebtedness, recognizing its utility solely in essential circumstances.

To Pamela’s discerning mind, debt represented borrowed funds from external sources, entailing an obligatory reimbursement, typically compounded with interest. Its manifestations spanned a spectrum—from loans and credit cards to mortgages. While debt wielded the potential for immediate fiscal respite, it also bore the weighty obligation of repayment, coupled with the encumbrance of accrued interest.

Choosing Wisely:

Pamela, an advocate of prudent choices, approached borrowing with sagacity, comprehending its far-reaching consequences. She meticulously appraised her options, weighing interest rates, terms, and her capacity for repayment with meticulous care.

Prior to embracing any form of indebtedness, Pamela conducted a self-inquiry, probing the necessity of the endeavour. She acknowledged the justification of borrowing for imperative outlays like education or homeownership while remaining vigilant against the allure of debt for capricious acquisitions or superfluous indulgences.

Managing Debt:

Deftly navigating the terrain of debt management, Pamela acknowledged the parity of responsibility in its stewardship. Methodically, she crafted budgets to ensure alignment with monthly repayments. Recognizing the perils of missed or delayed payments—bearing not only financial penalties but also repercussions on her credit standing—she remained steadfast in upholding punctuality.

Moreover, Pamela exhibited a penchant for exceeding the minimal repayment thresholds whenever feasible. This tactical move aimed to curtail the overall interest outlay in the long haul, accelerating the debt settlement process.

A confident business woman in control of her finances after learning financial literacy.
Financial Awareness Month

Financial Awareness Month: Saving To Build a Secure Future

Recognizing the fleeting respite that debt might offer, Pamela maintained an astute comprehension of the paramount significance of saving for forthcoming necessities or aspirations. In her financial lexicon, saving entailed the habitual allocation of funds, earmarked to fulfill future milestones or navigate unforeseen financial exigencies.

Setting Financial Goals:

Before embarking on her saving odyssey, Pamela meticulously charted her financial course by delineating explicit goals. These milestones served as her compass, guiding her in allocating savings and serving as motivational beacons to adhere to her path.

Among Pamela’s array of financial aspirations stood the edifice of an emergency fund, a reserve designated to cushion unforeseen fiscal blows. Nestled alongside was her pursuit of squirrelling away funds for retirement, securing her financial future. She also harboured dreams of a lavish vacation, a tangible goal that spurred her savings endeavour. With these meticulously defined aims, Pamela discovered an enhanced ability to apportion a fraction of her income toward her savings, bolstered by the clarity these goals afforded her.

The Power of Compounding:

Pamela had grasped the potency of compounding—an alchemy that amplified her savings over time. Initiating her savings journey early and maintaining steadfast consistency, she harnessed the leverage of compounding interest, witnessing the exponential growth of her funds as they multiplied over time.

Emergency Fund:

Among Pamela’s paramount objectives stood the establishment of an emergency fund, a pinnacle in her financial agenda. Ever cognizant of the capricious nature of unforeseen expenses—a medical issue, a vehicle repair, or even an abrupt job loss—she knew the paramount significance of creating this fiscal buffer. The emergency fund poised itself as a financial bastion, affording Pamela a safety net to weather the tempestuous tides of such unpredictable events, shielding her from resorting to indebtedness during arduous times.

Consistency is Key:

Pamela embraced consistency, cementing it as a cornerstone of her financial ethos. Automating her savings through scheduled transfers from her paycheque to her savings account forged a ritual—a habitual dedication ensuring that saving transcended sporadic endeavours and became an integral part of her routine.

“Saving is not an act, but a habit,” echoed Pamela’s mantra, a reminder she fervently espoused.

Amidst her odyssey of understanding both the advantages and disadvantages of debt and cultivating a savings mindset, Pamela sowed the seeds for a fortified financial tomorrow. She imbibed the wisdom of judicious borrowing, adeptly managing her debt, and nurturing the virtue of unwavering consistency in saving. Through the nexus of informed decisions and the cultivation of prudent financial habits, Pamela embarked steadfastly on the path to financial triumph.

Financial Awareness Month: Different Types of Accounts

Effectively handling your finances stands as a vital skill crucial for achieving your desired financial milestones. Understanding the array of available account varieties, each serving distinct purposes, becomes imperative. Delving into the diverse account types and their individual functions reveals insightful nuances.

Savings Account

A savings option presents an excellent avenue for those aiming to set aside funds for future endeavours. Within this category, you deposit some of your income and accrue interest on the total balance. Although the interest rate might fluctuate, over time it will provide a superior yield in contrast to a chequing alternative. Persistently stashing your funds in a savings account paves the way for gradual, steady growth in your savings pool. Once your savings reach a certain level, more investment products from chartered banks or credit unions become available paying a higher rate of interest yet still preserving your capital from loss.

Chequing Account

Conversely, a chequing account caters to immediate necessities and routine transactions. It furnishes a user-friendly avenue for depositing and withdrawing funds, facilitating bill payments, and purchases, and effortless fund accessibility. Unlike its savings counterpart, a chequing option typically doesn’t yield interest on deposited funds. Nevertheless, it encompasses amenities like cheque-writing capabilities, ATM accessibility, and online banking functionalities, rendering it an efficient account for overseeing everyday expenditures.

Credit Cards

Credit cards serve as a prevalent means for conducting transactions sans the necessity for immediate cash. They furnish a credit line courtesy of the issuing financial entity, enabling borrowing within specified limits. Utilizing a credit card entails borrowing from the card issuer, and mandating repayment within designated intervals to evade incurring interest fees. While credit cards present advantages such as reward initiatives, cashback opportunities, and purchase safeguards, exercising prudence in usage remains paramount to sidestep amassing high-interest credit card debt.

A picture of a young girl holding her piggy bank to show young people taking control of their money through financial literacy education.
Financial Awareness Month

Financial Awareness Month: The Importance of Financial Literacy

Envision a world where your financial being rests solely in your control, where informed choices about your finances thrive. Herein lies the essence of financial literacy. In our contemporary landscape, where currency wields immense influence, grasping the fundamentals of fiscal management becomes indispensable.

Financial literacy transcends mere perusal of texts or solving intricate mathematical conundrums; it embodies cultivating prudent monetary behaviours and acquiring the acumen and expertise to craft astute fiscal decisions. It entails deciphering the lexicon of finances, empowering you to traverse the intricate tapestry of personal finance with unwavering assurance.

Financial Awareness Month: Empowerment through Knowledge

Mastery in financial literacy serves as the catalyst to steer your financial destiny. Armed with a robust comprehension of personal finance tips, you wield the prowess to deliberate prudently on saving, investing, and allocating your funds. Gone are the days of entrusting others with your finances; instead, you grasp the reins, crafting decisions harmonizing with your aspirations and principles.

A paramount advantage of financial literacy lies in evading gratuitous debt. By assimilating the mechanics of credit, embracing the significance of budgeting, and avoiding the repercussions of lavish spending, you pave the way for sagacious fiscal choices that shield you from indebtedness. This insight empowers you to live within your means, steering clear of the strain and fiscal encumbrance entwined with debt.

A picture of a young girl holding her piggy bank to show young people taking control of their money through financial literacy education.
Financial Awareness Month

Financial Awareness Month: Achieving Financial Goals

Financial literacy emerges as a pivotal tool in propelling you toward attaining your financial milestones. Whether setting sights on homeownership, entrepreneurial pursuits, or securing retirement, unravelling the intricacies of currency is paramount. Equipped with the adeptness to orchestrate your earnings, outlays, and investments, you forge a trajectory toward realizing your aspirations.

Furthermore, financial literacy serves as the bedrock for cultivating a robust and thriving financial trajectory. Cultivating commendable fiscal practices—such as consistent saving and judicious investment—acts as a catalyst for nurturing your wealth across time horizons. Armed with apt expertise and skills, you harness the potential for your finances to labour on your behalf, erecting a sturdy fiscal groundwork for yourself and your kin.

Financial Awareness Month: The Basics of Managing Your Money

At its essence, financial literacy embodies grasping the rudiments of managing your finances. It encompasses delving into budgeting, saving, investing, and fortifying your assets. Mastery of these fundamental financial skills empowers optimal utilization of your resources, paving the way toward financial triumph.

Primarily, budgeting strategies stand as the cornerstone of adept financial administration. It entails meticulously monitoring your earnings and expenditures, ensuring alignment with your financial capacity. Through crafting a budget, you allocate resources judiciously, placing emphasis on your fiscal objectives. This enables deliberate spending choices and averts superfluous expenses.

Saving emerges as another pivotal facet of financial literacy. Consistently earmarking a fraction of your income facilitates the creation of an emergency fund for unforeseen outlays and fosters progress toward forthcoming financial aspirations. Saving not only constructs a safety net but also furnishes the liberty to seize emergent opportunities.

The investment serves as the linchpin for augmenting your wealth across timeframes. By comprehending diverse investment avenues—such as stocks, bonds, and real estate—you make informed investment verdicts attuned to your risk tolerance and financial ambitions. Learning about investing for beginners enables your capital to be invested and toil on your behalf, engendering passive income.

Lastly, safeguarding your assets holds cardinal significance in fortifying your financial trajectory. This encompasses procuring insurance coverage, encompassing health, life, and property insurance. Insurance mitigates the impact of unforeseen events, securing financial stability for both yourself and your cherished ones.

A picture of a young girl holding her piggy bank to show young people taking control of their money through financial literacy education.
Financial Awareness Month

Financial Awareness Month: Your Path to Financial Literacy

The journey of financial literacy spans a lifetime, brimming with continual opportunities for growth. Fortunately, an array of resources stands ready to augment your financial acumen and proficiency. Books, websites, podcasts, and workshops comprise a treasure trove of information at your disposal.

Embark by acquainting yourself with the fundamental tenets of personal finance. Delve into realms such as budgeting, saving, investing, and debt management. Embrace online courses and seek counsel from financial advisors poised to dispense tailored expertise aligned with your unique circumstances.

Moreover, internalize and enact the wisdom acquired by integrating prudent fiscal practices into your daily routine. Scrutinize expenditures, maintain a consistent saving regimen, and evaluate your financial choices. With time, your competence in managing finances burgeons, fostering confidence in steering your fiscal course and making well-informed choices.

Financial literacy transcends numerical figures; it embodies empowerment, enabling the realization of your financial objectives and fortification of your future.

In summation, the essence of financial literacy lies in securing a thriving and secure future. By cultivating commendable monetary practices and assimilating the basics of fiscal management, you chart a course toward astute decision-making, debt avoidance, and attainment of financial milestones. Seize control of your financial destiny by investing in financial education and translating newfound knowledge into everyday fiscal prudence.

Financial Awareness Month: Conclusion

I hope you enjoyed this Financial Awareness Month (otherwise known as Financial Literacy Month) Brandon’s Blog. Hopefully, this post achieved its goal of helping you have a better understanding of:

  • How Financial Awareness Month emphasizes understanding financial literacy for prudent money management.
  • Key aspects of financial literacy include distinguishing needs from wants, the importance of budgeting, wise debt handling, and saving for a secure future.
  • The significance of financial literacy for empowerment, achieving goals, and the basics of managing money effectively.
  • The power of compound interest, the role of different account types (savings, chequing, credit cards), and the need for consistency in financial planning.
  • Overall, Financial Awareness Month guides individuals toward a path of financial literacy and concludes by emphasizing its importance.

If you’re struggling with managing your overwhelming debt, don’t worry – there are some things you can do to take control of the situation. It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person.

First, it’s important to create a realistic budget and track your expenses. From there, you can prioritize your debt repayment and make consistent payments to chip away at what you owe. It’s also a good idea to seek professional financial advice to help guide you through the process. Just remember, managing debt is a gradual process that requires commitment and determination, but you can do it! So don’t hesitate to reach out for help from financial professionals.

Individuals and business owners must take proactive measures to address financial difficulties and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind.

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

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 uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. 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.

The Ira Smith Trustee & Receiver Inc. team understands 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.

A picture of a young girl holding her piggy bank to show young people taking control of their money through financial literacy education.
Financial Awareness Month

 

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ENTREPRENEURIAL CANADIAN BUSINESS BANKRUPTCIES: THE TIP OF A HUGE ICEBERG?

Insolvency for business including business bankruptcies

In the last two Brandon’s Blogs, I wrote about personal bankruptcy. The topic was the class of debts not released by a person’s discharge from personal bankruptcy. In this Brandon’s Blog, I discuss insolvency for business, and specifically, business bankruptcies, as a result of the recent report by the Canadian Federation of Independent Business (CFIB).

If a business is incapable to pay its financial obligations as they come due, it might deal with some negative effects, including legal action. However, this does not have to damage a business’s credibility forever, if management is prepared to take the required corrective activity before it is far too late.

If a business that is unable to pay its debts cannot turn itself around, it may be forced to declare business bankruptcies, which can have a devastating impact on the business and its employees.

What will happen to the company if it is insolvent?

If your company is financially troubled, it may need to assign itself into bankruptcy. Nonetheless, business bankruptcies are not always the automatic result of being insolvent. If your business is experiencing financial problems, it is essential to speak to a bankruptcy lawyer or a licensed insolvency trustee to review all of your realistic choices. Bankruptcy should be the last choice when nothing else will work.

Case in point, the recent report issued by the CFIB on small business insolvency says that its survey finds that only 10% of business owners would certainly declare bankruptcy if they were to shut down completely.

The CFIB report is meant to give a more comprehensive view of Canadian business insolvencies (bankruptcies + proposals). The data indicates that the number of businesses filing for bankruptcy has been on the rise and is now at the highest level of business insolvencies in two years.

As we recover from the COVID-19 pandemic, Canadian small businesses face a number of challenges in returning to normal operations, including debt from necessary pivots, increased costs of doing business and trouble finding employees to work.

The CFIB study found that half of the businesses (54%) are still seeing below-normal revenues, and over 60% are carrying unpaid debt from the pandemic. Small businesses are under significant financial pressure, with little room to maneuver.

Insolvency fears among Canadian small businesses are alarmingly high, and the true scope of the problem may be even greater than what is reflected in official statistics. Business owners have a range of options available to them when faced with financial difficulties, and bankruptcy is only one of these.

The CFIB recently released report details the different ways the surveyed small businesses in Canada said they would take if they had to shut down as follows:

  • 46% – Just ceasing all operations permanently.
  • 27% – Selling or transferring ownership to another party.
  • 10% – Filing for business bankruptcies or business bankruptcy protection.
  • 10% – Unsure at this time.
  • 7% – Exploring all options.

Interestingly enough, recapitalizing the legal entity or taking on more business debt by way of loans was not one of the answers. That should tell you how tapped-out Canadian small business shareholders are and that the businesses have no borrowing base room left on their assets to increase their bank borrowings.

business bankruptcies
business bankruptcies

Business bankruptcies: The insolvency of a business – First steps

The first step for the Directors is to consult with a business bankruptcy attorney/lawyer and a licensed insolvency trustee (formerly called a bankruptcy trustee) (sometimes referred to as “Trustee”). The lawyer can confidentially discuss the situation with the Directors and develop a proposed plan to deal with the situation.

The licensed insolvency trustee will review the company’s financial position and proposed game plan, and consider all options available to the company and its Directors. In Canada, the only party licensed to run the administration of bankruptcy, or any formal insolvency process, is a licensed insolvency trustee.

The licensed insolvency trustee will want to understand fully the company’s assets and liabilities. With a clear understanding of the company’s financial status, the Trustee can explain how best to implement the plan to either restructure or liquidate the company. If necessary, the Trustee can tweak the game plan.

The next question is whether the business is viable. Does it produce goods or services that are still in demand in the marketplace? If not, one option to consider is selling the business to another company that has complementary lines of business. Would the business fit in neatly with the buyer’s existing operations?

Could it perhaps be integrated in some way that would make your standalone business, which is not currently viable, become viable? Keep in mind for this to be an option, the company would need to have a solvent business.

If you can’t sell your unprofitable but still solvent company, you could always explore the option of a statutory liquidation. This would involve liquidating all the company assets, paying off any outstanding liabilities, and then distributing the remaining amount to shareholders.

Companies under business bankruptcy protection

If your business is struggling financially but still has potential, you may be able to restructure it through business bankruptcy protection. In Canada, there are two main possible federal statutes to restructure under; (i) the Bankruptcy and Insolvency Act (Canada); and (ii) the Companies’ Creditors Arrangement Act. One of these restructuring legal proceedings is an alternative to business bankruptcies.

A proposal under the Bankruptcy and Insolvency Act (Canada) (“BIA”)

The BIA is the canadian bankruptcy legislation containing all the rules and regulations in Canada’s bankruptcy regime. However, it also includes bankruptcy options such as a Division I Proposal for debtors who owe more than $250,000. This kind of financial restructuring allows the company to remain in business while it restructures. The essence of a BIA Proposal restructuring is that the company is offering a contract to its unsecured creditors to pay less than the total it owes those unsecured creditors in return for eliminating all of its unsecured debt.

To ensure that the company can successfully implement a proposal and pay its post-filing debts, the licensed insolvency trustee will need to be satisfied that all relevant information has been obtained and that the company has a good chance of success. The company’s cash flow will need to be monitored to ensure that it is sufficient to run the business and pay for the goods and services it needs going forward.

The Trustee will send all known creditors a copy of the proposal, a portion of the company’s statement of affairs listing the company’s assets and liabilities, a list of creditors, a proof of claim form, a voting letter and the Trustee’s report providing additional information and the Trustee’s recommendation.

The meeting of creditors is then held and if the proposal is accepted by the required majority of unsecured creditors, the licensed insolvency trustee takes the proposal documentation to Court for approval. If the proposal is accepted by creditors and approved by the court, the company is now bound by the proposal.

If the companies successfully complete their financial restructuring proposal, they will avoid business bankruptcies. However, if the company fails to get creditor or court approval, or fails to successfully complete the proposal, it will automatically go into bankruptcy under the BIA.

Financial restructuring under a Companies’ Creditors Arrangement Act (“CCAA”) plan of arrangement

Restructuring through a CCAA plan of arrangement is a financial restructuring process that provides companies with a way to restructure their debts and other obligations. This process can help companies to avoid the business bankruptcy process and to continue operating while they repay their creditors. It is very similar to a BIA proposal. The main difference is that it is only for companies with debts of $5 million or more, it is much more court-time intensive and there is no automatic business bankruptcy provision. In a CCAA, the licensed insolvency trustee acts as a monitor under the CCAA to administer the restructuring process.

When you hear when a company files for protection, or bankruptcy protection, in Canada it is usually under the CCAA. In the United States, it is under Chapter 11 of the US Bankruptcy Code.

business bankruptcies
business bankruptcies

Licensed insolvency trustees say if companies are insolvent and not viable the best option may be business bankruptcies

We still want to know if the business is viable when it is insolvent. If it is viable, then we could look at doing a restructuring as outlined above. After the company is restructured, we could either keep running it or look to sell it. If there are impediments to a successful restructuring, the approach we take even through business bankruptcies will be different than if it is not a viable business model any longer.

If the business is not viable and insolvent, then there is not much that can be done. The business is financially unhealthy and the marketplace no longer wants the product or service this business provides. Therefore, we are looking at bankruptcy if there is not a secured creditor who is going to enforce their security through a receivership. Receivership is a whole topic unto itself which is for a different day.

As a licensed insolvency trustee, I am responsible for understanding all the issues in business bankruptcies and preparing the necessary documentation for limited companies to assign themselves to business bankruptcies. A meeting of directors must be called for them to resolve that the company should put its business into bankruptcy and appoint one of the directors to be the designated officer.

The officer designated by the board should be the director with the most intimate knowledge of the company’s affairs. This officer will sign the bankruptcy documentation and be the company’s representative at the first meeting of creditors.

The Trustee attends the director’s meeting and prepares the meeting minutes, or the minutes will be prepared by the directors and provided to the Trustee. Then, the licensed insolvency trustee prepares the bankruptcy documents which include the statement of affairs, which is the listing of assets and liabilities, names addresses and amounts owing to each creditor. The designated officer then attests to the truthfulness of the information and signs it all.

The companies are insolvent and have to go into business bankruptcies

The Trustee files the necessary documentation with the Superintendent of Bankruptcy, who issues a certificate of bankruptcy and appoints the Trustee. That’s when a company is officially entered into the bankruptcy process and the bankruptcy proceedings begin. This is the process of a company filing an assignment into bankruptcy.

So in a commercial bankruptcy administration, the Trustee has several responsibilities. The Trustee has to deal with the assets. The Trustee has to first determine are the assets subject to the security of a lender. Is that lender’s security good and valid?

business bankruptcies
business bankruptcies

What happens when the certificate is issued for business bankruptcies?

If every one of the assets is covered by a lender’s valid security which makes the security cover the assets in priority to the rights of a Trustee, then the bankruptcy trustee would not take steps to handle the company’s secured assets unless the secured lender particularly requests the Trustee to do so separately either as Receiver or Agent of the secured lender.

So let’s simply take the case where in bankrupting the company, the Trustee is handling the assets either due to the fact that they’re not secured or because the secured financial institution wants the Trustee to handle the secured assets within the bankruptcy (which is not normal, but not unheard of either).

The Trustee needs to make certain that the corporate assets are safeguarded, that they’re appropriately insured and that the Trustee has carried out an inventory of those assets.

The Trustee then needs to figure out how is it going to offer those business assets for sale. The Trustee must do a risk-reward analysis to see if it makes good sense for the Trustee to run the business. If so, is the Trustee looking for a sale of assets as a going-concern business sale or just shut down the business and liquidate the assets once the reasons for running the business have been met?

If it doesn’t make sense for the Trustee to run the business, the Trustee will close it down and take a look at the alternatives available. The assets can be sold by public auction, private sale or by tender sale separating the assets up into blocs. If the assets are such that they would attract a retail audience where consumers would pay more than if it was sold in lots to wholesalers, then a retail sale would be the way to go. The nature of the assets will identify what sort of sale of assets the Trustee runs.

Business bankruptcies: How will I know what’s going on?

The Trustee alerts all of the company’s creditors listed in the sworn statement of affairs of the bankruptcy in a mailing. The Trustee includes a proof of claim form so that all creditors can file their claim. The Trustee examines the claims and holds the first meeting of creditors.

After the first meeting, a meeting of inspectors is held. Inspectors are creditor representatives who assist the Trustee in providing approval for the Trustee’s recommendations and actions it wishes to take. This includes any approval of asset sales the Trustee recommends after making an informed decision. Inspectors also need to approve the Trustee’s Final Statement of Receipts and Disbursements near the end of the administration of all business bankruptcies.

business bankruptcies
business bankruptcies

Finding a Licensed Insolvency Trustee

I hope you enjoyed this Brandon’s Blog on business bankruptcies. Are you or your company in need of financial restructuring? Are you or your company unable to survive the COVID pandemic and its aftermath? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

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We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

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business bankruptcies
business bankruptcies
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