Tag: Ira Smith Trustee

BUSINESS DEBT CRISIS OPTIONS COMPLETELY EXPLAINED BY A TORONTO LICENSED INSOLVENCY TRUSTEE

Post author By Brandon Smith
Post date August 4, 2025

debt crisis

The Greater Toronto Area is facing its worst business debt crisis in decades. As a licensed insolvency trustee who has helped many GTA businesses navigate financial challenges, I’m seeing alarming trends that every business owner needs to understand.

The GTA Business Landscape: Canada’s Economic Powerhouse Under Pressure

Toronto is Canada’s business and financial capital. It is the second-largest financial centre in North America. Our diverse economy spans technology, manufacturing, retail, hospitality, and professional services. This diversity usually protects us during downturns, but today’s debt crisis and the need for GTA business debt relief are hitting all sectors.

The IBISWorld Ontario Economic Overview report shows the numbers that tell the story:

Commercial banking generates $117.9 billion in revenue
Retail trade employs 884,368 people in Ontario
Professional services support 562,343 workers
Manufacturing provides 560,630 jobs

Yet despite this economic strength, a June 2025 IPSOS poll found that only 26% of Toronto residents say our economy is in good shape. Most concerning? 41% believe we’re heading in the wrong direction – away from economic prosperity.

How COVID-19 Started Toronto’s Debt Crisis

The Initial Shock That Changed Everything

When COVID-19 hit in March 2020, Toronto’s downtown core emptied overnight. Restaurants, hotels, retail stores, and service businesses saw customers disappear. Some sectors lost 25% of their business immediately.

The Canadian government responded with the Canada Emergency Business Account (CEBA) program. The Government of Canada has reported that over 898,000 Canadian businesses received $49 billion in emergency loans. At the time, this felt like a lifeline.

But here’s what many business owners didn’t realize: CEBA wasn’t free money. It was a loan with a delayed payment schedule.

Permanent Changes That Hurt Businesses

COVID-19 didn’t just create a temporary problem. It permanently changed how people work and shop:

Remote work became permanent – Downtown Toronto office vacancy hit 18.2%
Online shopping exploded – Many customers never returned to physical stores
Business travel disappeared – Hotels and restaurants lost corporate clients
Consumer habits shifted – People became more price-conscious and cautious

Source: The Toronto Metropolitan University June 5, 2025 media release titled “New Economic Report Underscores Urgency to Revitalize Downtown Toronto”.

These weren’t temporary changes. They represent a “new normal” that many businesses still struggle to adapt to.

debt crisis

Current State of the Debt Crisis: The Numbers Are Alarming

The CEBA Cliff Hit Hard

Business failures in Canada jumped by 87.2% in early 2024 – the biggest increase in 37 years. This debt crisis spike happened right after the CEBA loan forgiveness deadlines passed.

Source: The Canadian Association of Insolvency and Restructuring Professionals (CAIRP), July 5, 2024, media release titled: “Q1 2024 Canadian Insolvency Statistics”.

Here in Toronto, CAIRP stated that GTA business insolvency rates climbed from 0.4 per 1,000 businesses in 2021 to 0.7 in 2023. While that sounds small, it represents hundreds of local businesses closing their doors because of the debt crisis.

Source: Canadian Association of Insolvency and Restructuring Professionals (CAIRP) July 5, 2024 media release titled: “Q1 2024 Canadian Insolvency Statistics”

Most Failures Are Permanent Closures

Unlike consumer debt problems, which often involve payment plans, business failures are mostly bankruptcies. This means permanent closure, not restructuring. Business owners are giving up entirely rather than trying to reorganize.

Rising Delinquencies: A Warning Sign of Worse to Come

The debt crisis isn’t just about businesses that have already failed. Over 309,000 Canadian businesses missed at least one credit payment in early 2025 – that’s 11.3% of all businesses with credit.

For GTA businesses, these are some missed payment rates:

Restaurants and hospitality: 16.9%
Retail stores: 13.2%
Overall business loans 60+ days overdue: 3.4%

Ontario leads the country in business payment debt crisis problems, with an 18.8% increase year-over-year.

Why Businesses Can’t Pay Their Bills

Customer spending is down. The average consumer cut credit card spending by $107 per month in early 2025. When your customers have less money, your revenue drops.

Operating costs keep rising. Food costs are up 5.8%, rent up 6.0%, and wages up 4.8%. Profit margins are getting squeezed from both sides.

Household debt is crushing consumers. Canadian consumer debt hit $2.55 trillion. Ontario homeowners saw mortgage payments jump by over $680 monthly after renewal. When families are financially stressed, they stop spending on non-essentials.

CEBA loans are now due. As of January 19, 2024, 161,000 businesses still owed $7.8 billion in CEBA loans. Interest started charging at 5% annually, turning “emergency help” into another monthly payment. Outstanding CEBA loans are due for full repayment on or before December 31, 2026.

New Regulatory Pressures Adding to Business Costs

While the government talks about cutting red tape, Toronto businesses face new municipal-level regulations that add costs:

New Rules Taking Effect

Toronto nightclub licensing changes (January 2025)
Digital platform worker protections (July 2025) – affects delivery and ride-share businesses
New building codes (January 2025) – impacts construction companies
“Renoviction” bylaws (July 2025) – add costs for landlords
Civil litigation procedure changes – increases legal costs

Each regulation may be well-intentioned, but they all add compliance costs when businesses can least afford them.

The Pandemic’s Effects Still Linger

Consumer Behaviour Changed Forever

In our practice, we see businesses still struggling with permanent shifts in customer behaviour:

Customers shop differently now:

More online shopping, less in-store browsing
Greater focus on local businesses
More price-conscious decision-making
Delayed major purchases (cars, appliances, travel)
Higher expectations for health and safety

Businesses must operate differently:

Heavy investment in technology and e-commerce
Flexible work arrangements affect office space needs
Enhanced health and safety measures
More resilient supply chains
Higher service level expectations

The Technology Investment Burden

Every business now needs robust online capabilities. This means ongoing costs for:

E-commerce platforms
Cloud-based systems
Process automation
Cybersecurity
Staff training

For businesses already struggling with a debt crisis, these necessary investments create additional financial pressure.

debt crisis

Economic Pressures: The Double Hit of Recession and Inflation

Inflation Squeezes Profit Margins

Even though headline inflation dropped to 3.8% nationally, key business costs remained high:

Food prices: up 5.8%
Shelter costs: up 6.0%
Overall consumer prices: up 11.4% over two years

Toronto businesses face a cruel math problem: costs rise faster than what customers can pay.

Recession Fears Become Reality

Ontario’s economic growth fell to just 0.8% in 2025, with unemployment rising for eight straight quarters to 7.5%. When unemployment rises, consumer confidence falls, and spending drops further.

The vicious cycle: Higher costs → Higher prices → Fewer customers → Lower revenue → Unable to pay debts

Tightening Credit Markets Make Everything Worse

High interest rates created a credit crunch that hit businesses hard:

Borrowing became expensive: 63% of businesses say high interest rates prevent expansion or investment.

Credit demand dropped: 6% fewer businesses applied for new credit in early 2025. New credit card applications fell 10.3%.

Consumer credit tightened: When customers can’t get credit, they spend even less at your business.

Mortgage renewal shock: Ontario homeowners face mortgage renewal shocks. Payments increase by an average of $680 monthly. This leaves less money for extra spending.

Managing Financial Crises: What Works?

Cash Flow Management Must Be Daily

In this debt crisis, managing cash flow isn’t a monthly task – it’s a daily survival skill.

Track money every day:

Check bank balances each morning
Use a 13-week cash flow forecasting financial model
Know exactly what’s due when
Plan every payment carefully

Speed up money coming in:

Accept all payment methods (cards, e-transfer, mobile)
Offer discounts for quick payment (2% for 10 days)
Call overdue customers personally
Send invoices immediately

Slow down money going out:

Pay critical suppliers first (those who could shut you down)
Use electronic payments to control timing
Negotiate payment plans before you’re in trouble
Consider temporary hour reductions before layoffs

Strategic Payment Prioritization

When cash is tight, not all debts are equal. Here’s the priority order I recommend:

Payroll and source deductions (CRA will shut you down)
Critical suppliers (those who keep you operating)
Rent and utilities (you need a place to operate)
Secured loans (they can seize collateral)
Unsecured loans and credit cards (last priority)

Strategies for Addressing the Debt Crisis

Debt Restructuring Options That Work

Informal arrangements: Sometimes you can negotiate with creditors before formal proceedings. Recent success: a dining establishment reduced its monthly payments from $12,000 to $4,000.

Consumer proposals: If you’ve personally guaranteed business debts, this can reduce personal liability by up to 80%.

Business proposals: For companies, a formal proposal can reduce payments to all creditors simultaneously, thereby eliminating a debt crisis.

Strategic bankruptcy: Sometimes, closing one business cleanly allows you to start fresh without old debts following you.

Asset Management Approaches

Smart asset management can generate cash and reduce the debt crisis:

Sale-leaseback arrangements: Sell equipment or property, then lease it back. This generates immediate cash while keeping operational assets.

Asset liquidation: Sell non-essential assets. That unused equipment or excess inventory can become debt payments.

Intellectual property monetization: You can make money from intellectual property by licensing your processes, customer lists, or trademarks for ongoing income.

Real estate optimization: Consider subleasing unused space, downsizing, or moving to cut overhead costs.

debt crisis

Closing the Funding Gap: Where to Find Money

Government Programs Still Available

Canada Small Business Financing Program:

Up to $1 million in loans
Government backs 85% of lender risk
Better rates than regular business loans
Available through most banks and credit unions

Business Development Bank of Canada (BDC):

Patient capital for struggling businesses
Industry-specific expertise
Flexible repayment terms
Will work with businesses other lenders won’t touch

Ontario-specific programs:

Advanced Manufacturing and Innovation Competitiveness (AMIC)
Canadian Digital Adoption Program (CDAP)
Various regional development funds

Alternative Financing When Banks Say No

Invoice factoring: Sell your accounts receivable for immediate cash (typically 80-90% of invoice value).

Merchant cash advances: Get cash now based on future credit card sales (expensive but fast).

Peer-to-peer lending: Online platforms connect you directly with individual investors.

Revenue-based financing: Repayments are based on monthly revenue rather than fixed payments.

Crowdfunding: Crowdfunding works well for businesses that serve customers directly and have strong stories.

Learning from Denmark: How Copenhagen Handles Debt Better Than North America

Denmark, especially Copenhagen, does things differently – and better in many ways.

As a licensed insolvency trustee, I’ve seen what works and what doesn’t. Denmark’s approach offers real lessons for Canadian businesses struggling with a debt crisis.

How Denmark’s Government Manages Money (And What Businesses Can Learn)

Denmark keeps things simple and clear when managing government debt. Here’s what they do right:

They Have Clear Fiscal Oversight Rules In Denmark everyone knows who’s responsible for what. The Finance Minister makes the big decisions. The Danish National Bank handles the day-to-day money management. No confusion, no finger-pointing.

Everything Is Out in the Open Danish debt management is transparent. They publish their plans, explain their decisions, and stick to clear goals. This builds trust with lenders and keeps borrowing costs low.

They Plan for Problems The Danish National Bank actively watches for risks. They don’t just hope things work out – they prepare for trouble before it happens.

They Focus on Long-Term Costs Instead of looking for quick fixes, Denmark focuses on keeping borrowing costs low over many years. They accept some risk to achieve better long-term results.

How Denmark Helps People With Too Much Debt

Denmark’s consumer debt relief system is much simpler than ours:

One Program, Not Many Unlike Canada, where people might get confused by multiple options, Denmark has one clear debt relief program. Everyone knows how it works.

Pay What You Can, Then You’re Done People pay back what they can afford for five years. After that, the remaining debt disappears. It’s that simple.

This approach reduces stress and gives people a clear path to financial freedom.

What Danish Business Debt Rules Teach Us

Denmark has clear rules for dealing with a business debt crisis:

Clear Collection Process When businesses can’t pay, there’s a step-by-step process everyone understands. No surprises, no unclear rules.

Fair Bankruptcy System If a business truly can’t continue, bankruptcy is available. But there are clear requirements – you can’t just walk away from debts without a good reason.

Some Debts Come First When paying back creditors, certain debts get priority – like employee wages and government fines. This protects workers and ensures fair treatment.

Four Key Lessons for Toronto Businesses

After studying Denmark’s system, here are the most important lessons for GTA businesses:

1. Have Clear Financial Rules Just like Denmark’s government, your business needs clear financial procedures. Know who makes spending decisions. Set borrowing limits. Create rules for paying suppliers.

Whenever we do a financial restructuring under either a BIA Proposal or a CCAA Plan of Arrangement, businesses with clear financial procedures survive crises better than those making it up as they go.

2. Manage Risk Before Problems Start Denmark doesn’t wait for a debt crisis – they plan. Your business should do the same.

Ask yourself:

What could go wrong with my cash flow?
Which customers might stop paying?
What happens if my biggest supplier demands cash only?
How would a recession affect my business?

3. Be Open About Your Financial Situation Denmark’s transparency builds trust and keeps borrowing costs low. The same works for businesses.

Be honest with:

Your bank about cash flow challenges
Suppliers about payment timing
Key customers about any service issues
Your accountant about all financial concerns

I’ve seen businesses get better deals from creditors simply by being upfront about their situation.

4. Think Long-Term Economic Resilience, Not Just Survival Denmark focuses on long-term borrowing costs, not just immediate needs. Businesses should think the same way.

Don’t just ask: “How do I pay this month’s bills?” Instead, ask: “How do I build a business that can handle future challenges?”

This might mean:

Accepting higher costs now for more reliable suppliers
Building cash reserves instead of maximizing current profits
Investing in systems that reduce future risks
Developing multiple revenue streams

Why These Lessons Matter for Canadian Businesses

Denmark’s approach works because it’s predictable and fair. Everyone knows the rules. There are clear consequences for breaking them. People can plan.

Canadian businesses facing debt crisis often struggle because:

Rules seem to change constantly
Different creditors want different things
No one explains the options clearly
Business owners feel lost and alone

Denmark’s system shows there’s a better way.

Applying Danish Lessons in Your Business

You can start using Danish-inspired approaches today:

Create Financial Transparency

Prepare monthly financial reports (even simple ones)
Share appropriate information with key stakeholders
Document your financial decision-making process
Keep clear records of all business debts and payments

Develop Risk Management Habits

Review your biggest financial risks monthly
Create backup plans for your most important suppliers
Maintain relationships with multiple lenders
Build cash reserves when times are good

Establish Clear Procedures

Write down who can authorize spending
Create a priority list for paying bills during tight times
Develop criteria for extending credit to customers
Set clear policies for managing business debt

When Danish-Style Approaches Aren’t Enough

Sometimes, despite good financial management, businesses still face an overwhelming debt crisis. That’s where professional help becomes necessary.

As a licensed insolvency trustee, I help businesses when:

Clear procedures aren’t enough to solve cash flow problems
Risk management didn’t prevent a major crisis
Transparency reveals more problems than solutions
Long-term thinking shows the business isn’t viable

Even then, Danish lessons help. Transparent businesses, planned, and managed risks professionally, have more options when a crisis hits.

The Bottom Line for Toronto Businesses

Denmark proves that simple, clear, fair approaches to debt work well. Their success comes from:

Clear rules everyone understands
Transparency that builds trust
Risk management that prevents problems
Long-term thinking over quick fixes

You can apply these principles whether your business is thriving or struggling. The earlier you start, the better your results will be.

If your business is already in debt crisis, these Danish lessons can still help guide your financial recovery. Combined with professional advice from a licensed insolvency trustee, they provide a roadmap back to financial health.

debt crisis

When to Call a Licensed Insolvency Trustee

Don’t wait until creditors are knocking down your door. The best outcomes happen when business owners seek help early.

Call immediately if:

You’re using credit cards for business expenses
Missing any loan payments
CRA is demanding payment
Suppliers put you on cash-only terms
Considering borrowing against your home
Losing sleep over business finances

What to expect in our first meeting:

Free consultation and options review
Honest assessment of your situation
Clear explanation of all solutions
No pressure to file if other options exist

Your Action Plan: Recovery Is Possible

Toronto’s business debt crisis is serious, but recovery is always possible with the right approach. I’ve guided hundreds of GTA business owners through financial difficulties.

Your immediate next steps:

Face the numbers honestly – create that daily cash flow tracker
Get professional help – talk to a licensed insolvency trustee
Communicate proactively – call creditors before they call you
Focus on cash flow – every decision should consider cash impact
Plan for recovery – what will your business look like post-crisis?

Remember: The longer you wait, the fewer options you have. But even in the worst situations, there’s usually a path forward.

Why Experience Matters in a Debt Crisis

Not all insolvency trustees understand business; some focus only on the consumer market. We specialize in owner-managed business insolvencies, working in the GTA and the wider Ontario market. We know local conditions and have relationships with Toronto-area lawyers, accountants, banks, and others. We know which solutions work for different business types.

Our approach is straightforward: preserve what can be saved, eliminate what can’t, and help you move forward with confidence.

debt crisis

Frequently Asked Questions About Toronto’s Business Debt Crisis

Answers from Ira Smith Trustee & Receiver Inc., Licensed Insolvency Trustee with years of experience helping GTA businesses

What is the current state of Toronto’s business debt crisis?

Toronto is facing its worst business debt crisis in decades. The numbers are shocking, and every business owner needs to understand what’s happening.

Here’s the reality: Business failures in Canada jumped 87.2% in early 2024 – the biggest increase in 37 years. Right here in Toronto, business closures climbed from 0.4 per 1,000 businesses in 2021 to 0.7 in 2023. That represents hundreds of local businesses shutting their doors permanently.

What’s really concerning is that over 309,000 Canadian businesses missed at least one credit payment in early 2025. That’s more than 1 in every 10 businesses struggling to pay their bills. Ontario leads the country in payment problems.

How did COVID-19 contribute to the debt crisis, and what permanent changes did it bring?

COVID-19 didn’t just create a temporary problem – it permanently changed how business works in Toronto. As someone who helped many businesses through the pandemic and since then, we saw this transformation firsthand.

The Initial Shock When lockdowns hit in March 2020, downtown Toronto emptied overnight. Restaurants, hotels, retail stores, and service businesses lost customers immediately. Some sectors saw 25% revenue drops in weeks.

The government launched the CEBA program, giving $49 billion in loans to nearly 900,000 businesses. At the time, this felt like a lifeline. However, many business owners didn’t realize that CEBA wasn’t free money – it was a loan with delayed payments.

Permanent Changes That Hurt Businesses The pandemic created a “new normal” that many businesses still can’t adapt to:

Remote work became permanent – Downtown Toronto office vacancy hit 18.2%
Online shopping exploded – Many customers never returned to physical stores
Business travel disappeared – Hotels and corporate catering lost their biggest clients
Consumer habits shifted – People became more price-conscious and cautious about spending

The Technology Investment Burden Every business now needs strong online capabilities. This means ongoing costs for e-commerce platforms, cloud systems, and staff training. For businesses already struggling with a debt crisis, these necessary investments create additional financial pressure.

In our practice, we see businesses that survived the initial COVID shock but are now failing because of the costs of adapting to these permanent changes.

What are the main reasons businesses are struggling to pay their bills?

After helping many GTA businesses, we see the same problems over and over. It’s not just one issue – multiple factors are hitting businesses at the same time.

Customers Have Less Money Your customers are financially stressed too. Average credit card spending dropped $107 per month in early 2025. When families cut back on spending, your revenue drops immediately.

Consumer debt in Canada hit $2.55 trillion. Ontario homeowners saw mortgage payments jump after renewal. When your customers are struggling with their own bills, they stop spending on non-essentials.

Operating Costs Keep Rising While customer spending drops, your costs keep climbing:

Food costs: up 5.8%
Rent and utilities: up 6.0%
Employee wages: up 4.8%

This creates a profit squeeze from both directions – less revenue coming in, more costs going out.

CEBA Loans Are Now Due This is a big one many business owners forgot about. As of January 2024, 161,000 businesses still owed $7.8 billion in CEBA loans. These loans now charge 5% annual interest. What felt like “emergency help” became another monthly payment.

New Regulations Add Costs Toronto keeps adding new rules that sound good but cost money:

New nightclub licensing requirements
Digital platform worker protections
Updated building codes
“Renoviction” bylaws for landlords

Each regulation adds compliance costs when businesses can least afford them.

How do tightening credit markets and inflation make the debt crisis worse?

High interest rates created a perfect storm that’s crushing Toronto businesses. Let me explain how this works.

Borrowing Became Expensive Our entrepreneurial business clients say high interest rates prevent them from expanding or investing. When you can’t borrow money to grow or even maintain your business, you’re stuck.

The Mortgage Renewal Shock Ontario homeowners face payment increases averaging $680 monthly when their mortgages renew. This leaves families with even less money to spend at local businesses.

The Inflation Squeeze While national inflation dropped to 3.8%, key business costs stayed high:

Food prices: up 5.8%
Shelter costs: up 6.0%
Overall prices: up 11.4% over two years

The Vicious Cycle Here’s how it all connects: Higher costs force businesses to raise prices → Higher prices mean fewer customers → Fewer customers means lower revenue → Lower revenue makes it impossible to pay debts.

Add unemployment rising for eight straight quarters to 7.5%, and you have a situation where businesses face higher costs and fewer customers at the same time.

What cash flow management strategies work for struggling businesses?

Cash flow management isn’t a monthly task anymore – it’s daily survival. Here’s what actually works, based on my experience with hundreds of struggling businesses.

Track Money Every Day Check your bank balance every morning with your coffee. Use a simple 13-week cash flow forecast to know exactly what’s due when. This isn’t busy work – it’s survival.

Speed Up Money Coming In

Accept all payment methods (credit cards, e-transfer, mobile payments)
Offer 2% discounts for payments within 10 days
Call customers with overdue accounts personally
Send invoices the same day you deliver goods or services

Slow Down Money Going Out

Pay critical suppliers first (those who could shut you down)
Use electronic payments to control timing
Negotiate payment plans before you’re in trouble
Consider temporary hour reductions before layoffs

Priority Order for Tight Times When cash is extremely tight, pay in this order:

Payroll and government deductions (CRA will shut you down)
Critical suppliers (those who keep you operating)
Rent and utilities (you need a place to work)
Secured loans (they can seize your assets)
Unsecured loans and credit cards (last priority)

What debt restructuring and financing options actually work for businesses in trouble?

We use every option available to help Toronto area companies conquer GTA busines insolvency. Here’s what actually works in real situations.

Debt Restructuring Options

Informal arrangements – Sometimes I can negotiate directly with creditors. Last month, I reduced a restaurant’s monthly payments from $12,000 to $4,000.
Consumer proposals – If you’ve personally guaranteed business debts, this can reduce your personal liability by up to 80%.
Business proposals – For larger companies, we can propose reduced payments to all creditors at once.
Strategic bankruptcy – Sometimes closing one business cleanly lets you start fresh without old debts following you.

Asset Management That Generates Cash

Sale-leaseback – Sell your equipment or building, then lease it back. This generates immediate cash while keeping what you need to operate.
Asset liquidation – That unused equipment or excess inventory can become debt payments.
Intellectual property licensing – License your processes or customer lists for ongoing revenue.
Real estate optimization – Sublease unused space or downsize to reduce overhead.

Financing When Banks Say No

Canada Small Business Financing Program – Up to $1 million with government backing
Business Development Bank of Canada – They’ll work with businesses other lenders won’t touch
Invoice factoring – Sell your unpaid invoices for immediate cash (usually 80-90% of value)
Revenue-based financing – Repay based on monthly sales rather than fixed payments

What can Toronto businesses learn from how Denmark handles a debt crisis?

After studying international approaches to a business debt crisis, Denmark offers four practical lessons for Toronto companies.

Have Clear Financial Rules Like Denmark’s government, your business needs clear procedures. Know who can authorize spending. Set borrowing limits. Create rules for paying suppliers.

In my experience, businesses with clear financial procedures survive crises better than those making it up as they go.

Manage Risk Before Problems Start Denmark doesn’t wait for a debt crisis – they plan ahead. Ask yourself:

What could go wrong with my cash flow?
Which customers might stop paying?
What happens if my biggest supplier demands cash only?
How would a recession affect my business?

Be Transparent About Your Situation Denmark’s openness builds trust and keeps borrowing costs low. Be honest with your bank about cash flow challenges, suppliers about payment timing, and your accountant about financial concerns.

I’ve seen businesses get better deals from creditors simply by being upfront about their situation.

Think Long-Term, Not Just Survival Don’t just ask “How do I pay this month’s bills?” Instead ask “How do I build a business that can handle future challenges?”

This might mean accepting higher costs now for more reliable suppliers, building cash reserves, or developing multiple revenue streams.

When should I call a licensed insolvency trustee for help?

Don’t wait until creditors are knocking down your door and you are in full debt crisis mode. The best outcomes happen when business owners seek help early, while they still have options.

Call immediately if you’re:

Using credit cards for business expenses
Missing any loan payments
Getting demands from CRA
Being put on cash-only terms by suppliers
Considering borrowing against your home
Losing sleep over business finances

What to expect in our first meeting:

Complete confidentiality (everything is protected by law)
Free consultation with no obligation
Honest assessment of your situation
Clear explanation of all available options
No pressure to file for bankruptcy if other solutions exist

Why timing matters: The earlier you call, the more options you have. I can often help businesses restructure and continue operating. If entrepreneurs are early enough, perhaps informal workouts are a possibility. Otherwise, perhaps Division I Proposals are the answer. But if they wait too long, your only choice might be permanent closure.

In my years as a licensed insolvency trustee, I’ve learned that business owners who seek help early have the best chance of saving their companies. Those who wait until the last minute often have fewer choices.

Remember: Asking for professional help isn’t admitting failure – it’s taking control of your future and finding the best path forward for your specific situation.

Take Action Today

The Toronto business debt crisis won’t solve itself. But with proper guidance, your business can not only survive but also emerge stronger and more resilient.

If you’re struggling with a business debt crisis, don’t suffer in silence. Contact me for a confidential consultation. We’ll review your situation, explore all options, and create a plan that works for your specific circumstances.

Asking for help isn’t admitting failure – it’s taking control of your future.

As someone who has helped many Canadian businesses and business owners, I’ve seen companies survive and thrive even in the toughest times. The businesses that succeed are those that face reality honestly, adapt quickly, and aren’t afraid to ask for help when they need it.

If your business is facing financial challenges, don’t wait until it’s too late. Early intervention provides more options and better outcomes. Contact Ira Smith Trustee & Receiver Inc. today to discuss your situation confidentially and explore your options.

You’re not alone in this. There’s a path forward, and it starts with reaching out for the right kind of help. Take that step—you deserve it. If you’re a GTA resident dealing with an overwhelming debt crisis, don’t wait for your credit situation to get worse. As a licensed insolvency trustee serving Toronto, Mississauga, Brampton, Markham, and surrounding areas, I’m here to help you understand your options.

Free consultation available:

No obligation to proceed
Complete review of your Canadian business debt and credit situation
Practical next steps you can take immediately

Remember: Your current financial situation doesn’t define your future. With the right help and information, you can overcome both a debt crisis and credit score problems.

As a licensed insolvency trustee in the Greater Toronto Area, I tell consumers and business owners to see financial problems not as failures but as challenges. Proper guidance can solve them. By knowing the warning signs of insolvency and getting professional advice early, many people and businesses find a way forward. They can restructure, make strategic changes, or wind down in an orderly way that protects future chances.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help Canadian entrepreneurs understand their options and find a path forward during financial challenges.

At the Ira Smith Team, we understand the financial and emotional components of a debt crisis. We’ve seen how traditional approaches often fall short in today’s economic environment, so we focus on modern debt relief options that can help you avoid bankruptcy while still achieving financial freedom.

The stress of financial challenges can be overwhelming. We take the time to understand your unique situation and develop customized strategies that address both your financial needs and emotional well-being. There’s no “one-size-fits-all” approach here—your financial solution should be as unique as the challenges you’re facing.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your Canadian company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

The information provided in this blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc., and any contributors do not assume any liability for any loss or damage.

debt crisis

Brandon Blog Post

CASH FLOW CRISIS: HOW ONTARIO BUSINESSES CAN MASTER FINANCIAL RECOVERY IN 2025

Post author By Brandon Smith
Post date July 28, 2025

Cash Flow Introduction

Are you an Ontario business owner staying up at night because your cash flow isn’t covering your bills? You have money coming in, but it’s not arriving when you need it most, such as when payroll is due or suppliers are demanding payment. If you’re nodding along, you’re experiencing what thousands of Ontario entrepreneurs face right now: a cash flow crisis that threatens even profitable businesses.

As a Licensed Insolvency Trustee who has guided many Ontario businesses through financial difficulties over the past 20 years, I’ve seen how quickly cash flow problems can destroy a company. But I’ve also witnessed businesses transform their financial management and emerge stronger than ever.

According to information released by Equifax Canada in June 2025 in its Newsroom release titled “Debt Pressure Building Up for Canadian Businesses“, the numbers tell a troubling story: in Q1 2025, over 309,000 Canadian businesses—11.3% of all credit-active businesses—missed at least one payment due to cash flow issues. This represents the highest rate since the 2009 financial crisis. The report also states that in Ontario, businesses in accommodation and food services are experiencing 16.9% payment difficulties, while retail operations face 13.2% payment problems.

Here’s what I want every Ontario business owner to understand: cash flow problems are solvable. With proper knowledge, the right tools, and sometimes professional guidance, you can master your cash flow and build a financially resilient business. This Brandon’s Blog will show you exactly how to do it.

What is Cash Flow?

Definition and Key Concepts

Cash flow is the movement of money into and out of your business over a specific period. Think of it as the financial heartbeat of your company—money flowing in from customers, flowing out to suppliers, employees, and other expenses. Unlike profit, which can include non-cash items like depreciation, cash flow shows you the actual cash available to run your business.

Many Ontario business owners confuse it with profit, but they’re fundamentally different. You can be profitable on paper while having negative cash, or have positive cash while showing an accounting loss. This distinction is crucial for business survival.

Here’s a real example from my practice: A Toronto small business retailer showed $15,000 in monthly profit but had negative cash because customers paid with credit cards (creating a 2-3 day delay) while staff needed to be paid weekly and suppliers demanded COD payment. The timing mismatch created a cash position crisis despite healthy profits.

Importance of Cash Flow

Cash flow is the lifeblood of your business. Without an adequate level, you cannot:

Pay employees on time
Meet supplier obligations
Invest in growth opportunities
Handle unexpected expenses
Maintain business operations

Strong cash flow management provides several key benefits:

Operational stability: Ensures you can meet all obligations as they come due
Growth funding: Provides resources for expansion without external financing
Emergency preparedness: Creates buffers for unexpected challenges
Negotiating power: Gives you leverage with suppliers and customers
Stress reduction: Eliminates the anxiety of wondering if you can pay bills

According to Statistics Canada’s Canadian Survey on Business Conditions, second quarter 2025, Canada’s challenging business environment is such that 65.4% of businesses cite rising costs as their primary concern. Effectively managing this isn’t just important—it’s essential for survival.

Glossary of Common Cash Flow Terms

Understanding cash flow terminology is crucial for effective financial management in business. Here are the key terms every Ontario business owner should know:

A-C

Accounts Payable: Money your business owes to suppliers and vendors for goods or services purchased on credit. Managing payables strategically helps optimize timing.

Accounts Receivable: Money owed to your business by customers for products or services delivered but not yet paid for. Efficient collection of receivables is crucial for a healthy business.

Accrual Accounting: An accounting method where revenues and expenses are recorded when they occur, not when cash changes hands. This creates the difference between profit and cash.

Capital Expenditures (CapEx): Money spent on acquiring or upgrading physical assets like equipment, property, or technology. These investments are subtracted from operating cash flow to calculate free cash flow.

Cash Conversion Cycle: The time it takes for a business to convert its investments in inventory and receivables back into cash. A shorter cycle means better cash flow.

Cash Flow Forecast: A projection of expected cash inflows and outflows over a specific period, typically 13 weeks or 12 months. Essential for planning and avoiding cash shortages.

Cash Flow from Financing Activities: Cash movements related to funding your business, including loan proceeds, repayments, owner investments, and dividend payments.

Cash Flow from Investing Activities: Cash spent on or received from investments in your business’s future, such as equipment purchases, property acquisitions, or asset sales.

Cash Flow from Operating Activities: Cash generated from your core business operations—the most important indicator of business health.

Credit Line: A pre-approved loan amount that businesses can draw upon as needed. Provides flexibility for managing cash fluctuations.

D-H

Days Sales Outstanding (DSO): The average number of days it takes to collect payment from customers. Lower DSO means faster cash collection.

Depreciation: The gradual reduction in an asset’s value over time. It’s a non-cash expense that affects profit but not cash flow.

Direct Method: A cash flow statement preparation method that lists actual cash receipts and payments, providing clear visibility into cash sources and uses.

Free Cash Flow: Operating cash flow minus capital expenditures. Represents cash available for owners, debt repayment, or reinvestment after maintaining current operations.

HST (Harmonized Sales Tax): The 13% combined federal and provincial sales tax in Ontario. Creates significant cash impacts, especially for businesses with longer collection cycles.

I-N

Indirect Method: A cash flow statement preparation method that starts with net income and adjusts for non-cash items and working capital changes.

Insolvency: The inability of a business to pay its debts as they come due. Requires professional intervention to avoid bankruptcy.

Inventory Turnover: How quickly a business sells and replaces its inventory. Higher turnover generally improves cash flow.

Licensed Insolvency Trustee: A federally regulated professional who helps businesses and individuals deal with debt problems and insolvency procedures.

Liquidity: The ability to meet short-term financial obligations. High liquidity means better cash flow management.

Net Cash Flow: The sum of all cash flows (operating + investing + financing), showing the overall change in cash position.

Net Income: Profit after all expenses and taxes. Different from cash flow because it includes non-cash items like depreciation.

O-Z

Operating Cash Flow Margin: Operating cash flow divided by revenue, expressed as a percentage. Healthy businesses typically maintain margins above 10%.

Payroll: Employee wages and benefits—often the largest fixed expense for Ontario businesses and has a critical impact on the cash position of the business.

Seasonal Variations: Predictable changes in business activity throughout the year that affect the seasonal cash patterns.

Trade Credit: Credit extended by suppliers allowing businesses to purchase goods or services and pay later.

Working Capital: Current assets minus current liabilities. Changes in working capital affects the cash position.

13-Week Rolling Forecast: A detailed cash flow projection covering the next 13 weeks, updated weekly. Essential for short-term cash management.

Types of Cash Flow

Understanding the different types helps you identify where your money is coming from and going to. Each type tells a different story about your business’s financial health.

1. Operating Cash Flow

Operating cash flow represents money generated from your core business operating activities—selling products or services. Cash flow from operating activities is the most important type because it shows whether your business model is generating cash.

Positive operating cash flow means your business operations are generating more cash than they consume. This is essential for long-term sustainability.

Negative operating cash flow indicates your operations are consuming more cash than they generate, which is unsustainable without external funding.

2. Investing Cash Flow

Investing cash flow tracks money spent on or received from investing activities in your business’s future. Cash flow from investing activities include:

Equipment purchases
Property acquisitions
Technology investments
Sale of business assets

Negative investing cash flow often indicates healthy growth, as you’re investing in your business’s future. However, these investments must be balanced against your ongoing operating cash flow capacity.

3. Financing cash flow

This shows money moving in and out related to funding your business. The most common cash flow from financing activities is:

Loan proceeds (positive)
Loan repayments (negative)
Owner investments (positive)
Dividend payments (negative)

4. Free cash flow

Free cash flow is operating cash flow minus capital expenditures. It represents the cash available for owners, debt repayment, or reinvestment after maintaining current operations.

Formula: Free Cash Flow = Operating Cash Flow – Capital Expenditures

Free cash flow is crucial because it shows the cash your business generates after investing in maintaining its productive capacity.

5. Net Cash Flow

Net cash flow is the sum of all cash flows (operating + investing + financing). It shows the overall change in your cash position over a period.

Positive net cash flow means your cash position improved. Negative net cash flow means your cash position declined.

Cash Flow Formulas Explained

Understanding how to do the different calculations will give you powerful insights into your business’s financial health.

1. How to Calculate Operating Cash Flow

Direct Method: Operating Cash Flow = Cash Receipts from Customers – Cash Payments to Suppliers and Employees

Indirect Method: Operating Cash Flow = Net Income + Depreciation + Changes in Working Capital

The indirect method is more commonly used because it’s easier to calculate from standard financial statements of the balance sheet, showing the financial position of the business and the income statement, showing the profit or loss for the fiscal period.

2. How to Calculate Free Cash Flow

Basic Formula: Free Cash Flow = Operating Cash Flow – Capital Expenditures

Expanded Formula: Free Cash Flow = Net Income + Depreciation – Changes in Working Capital – Capital Expenditures

Free cash flow is particularly important for business valuation and understanding your company’s ability to generate cash for owners.

3. Calculating Net Cash Flow

Formula: Net Cash Flow = Operating Cash Flow + Investing Cash Flow + Financing Cash Flow

This calculation shows your overall cash position change during a specific period.

Cash Flow Forecasting Techniques

This forecasting predicts future cash positions based on expected receipts and disbursements. Effective forecasting involves:

13-Week Rolling Forecast: Update weekly, showing details of incoming and outgoing cash for the next 13 weeks
Monthly Forecast: Broader view covering 12-18 months
Scenario Planning: Best case, worst case, and most likely scenarios
Key Forecasting Steps:

Estimate sales based on historical data and market conditions
Project collection timing based on customer payment patterns
Schedule known expenses (payroll, rent, loan payments)
Include variable expenses tied to sales levels
Account for seasonal variations
Update regularly with actual results

Cash Flow Statements

Cash flow statements provide a formal record of your business’s cash movements, offering crucial insights into financial health and operational efficiency.

Direct Method

The direct method lists actual cash receipts and payments:

Cash Inflows:

Collections from customers
Interest received
Other operating receipts

Cash Payments:

Payments to suppliers
Employee wages
Interest paid
Tax payments

The direct cash flow statement method provides clear visibility into cash sources and uses, making it easier to identify improvement opportunities.

Indirect Method

The indirect method starts with net income and adjusts for non-cash items:

Starting Point: Net Income
Add Back: Depreciation, amortization, losses on asset sales
Subtract: Gains on asset sales
Adjust for Working Capital Changes: Changes in accounts receivable, inventory, and accounts payable.

Most businesses use the indirect cash flow statement method because it’s easier to prepare from existing financial statements.

Differences Between Cash Flow and Profit

Understanding the difference between cash flow and profit is crucial for business survival:

Profit (Net Income):

Includes non-cash items like depreciation
Uses accrual accounting (revenue recorded when earned, expenses when incurred)
Can be positive while cash flow is negative
Disclosed in the income statement

Cash flow

Shows actual cash movements
Reflects the timing of cash receipts and payments
Can be positive while showing accounting losses
Does not include any accrual accounting items

Real Example: A Mississauga manufacturing company showed $50,000 quarterly profit but had negative $25,000 cash flow because customers took 90 days to pay while suppliers required 30-day payment terms.

Significance of Cash Flow Analysis

Cash flow analysis provides insights that profit analysis alone cannot offer, making it essential for business decision-making.

Insights into Financial Health

Cash flow analysis reveals:

Operational efficiency: How well your business converts sales to cash
Liquidity position: Your ability to meet short-term obligations
Growth sustainability: Whether growth is self-funding or through external financing activities
Debt capacity: How much additional debt your business can support
Dividend capacity: How much cash is available for owner distributions

Identifying Investment Opportunities

Strong cash flow analysis helps identify:

Expansion opportunities: When you have excess cash for growth
Efficiency improvements: Areas where cash flow can be optimized
Asset investments: Timing for equipment or facility upgrades
Market opportunities: When you can invest in new markets or products

Regular cash flow analysis also helps you avoid overextending during good times and prepare for downturns.

Managing Cash Flow

Effective cash flow management requires different strategies for different business types and situations.

Strategies for Individuals

For sole proprietors and individual business owners:

Separate Business and Personal Finances: Maintain separate accounts to track business cash flow accurately
Pay Yourself a Salary: Regular draws help predict cash needs
Build Personal Emergency Fund: Separate from business reserves
Plan for Tax Payments: Set aside money for quarterly tax obligations

Strategies for Businesses

Accelerate Collections:

Invoice immediately upon delivery
Offer early payment discounts
Implement automated collection systems
Require deposits for large orders

Optimize Inventory Management:

Use just-in-time inventory systems
Negotiate consignment arrangements
Liquidate slow-moving stock
Improve inventory turnover

Manage Payables Strategically:

Negotiate extended payment terms with suppliers
Take advantage of early payment discounts when beneficial
Schedule payments to match cash inflows
Maintain good supplier relationships

Cutting Expenses and Cost Management

Fixed Cost Reduction:

Renegotiate rent and lease agreements
Consolidate facilities where possible
Review insurance coverage for potential savings
Eliminate unused services and subscriptions

Variable Cost Optimization:

Negotiate better supplier terms
Improve operational efficiency
Reduce waste and inefficiencies
Implement cost control systems

Real Example: A Toronto wholesaler reduced monthly expenses by renegotiating its premises lease terms and switching to more efficient suppliers.

Optimizing Credit Utilization

Business Credit Lines:

Maintain credit lines for cash flow smoothing
Use credit strategically, not as a crutch
Pay down balances quickly to maintain capacity
Monitor credit utilization ratios

Supplier Credit:

Negotiate payment terms that match your cash flow cycle
Maintain good relationships to preserve credit access
Use trade credit to bridge cash flow gaps
Monitor supplier payment terms for changes

Utilizing Cash Flow Analysis Tools

Modern technology offers powerful tools for cash flow management and analysis.

Cash Flow Software Options

The Business Development Bank of Canada (BDC) has compiled a listing titled Free and low-cost accounting and invoicing software. They identify 15 different software packages that can fulfill all of your accounting and financial management needs, including the preparation of the Statement of Cash Flows.

Key Features to Look For:

Real-time cash position monitoring
Automated forecasting capabilities
Integration with bank accounts
Customizable reporting
Mobile accessibility

Benefits and Limitations

Benefits of Cash Flow Tools:

Automation: Reduces manual work and errors
Real-time visibility: Instant access to cash position
Forecasting accuracy: Better predictions based on historical data
Scenario planning: Ability to model different situations
Integration: Connects with banking and accounting systems

Limitations to Consider:

Cost: Quality tools require investment
Learning curve: Staff training may be required
Data quality: Tools are only as good as the input data
Complexity: Some tools may be overly complex for small businesses

FREE OFFER: We have put together a basic 13-week cash flow projection in Google Sheets format. It can be either transferred to your Google Drive or downloaded in Excel format for your use. If you would like a copy of it, please tell our AI financial coach, Fiona Ledger, that you would like a copy of our 13-week cash flow projection template and also provide your name and email address and it will be sent to you.

Ontario-Specific Cash Flow Challenges

Ontario businesses face unique challenges that require targeted solutions:

HST Management: The 13% HST creates significant cash impacts, especially for businesses with longer collection cycles. Planning for HST payments is crucial.
Seasonal Variations: Many Ontario businesses experience significant seasonal fluctuations, requiring careful cash planning for slow periods.
Supply Chain Costs: Rising transportation and logistics costs affect cash timing and amounts.
Labour Costs: Minimum wage increases and benefit costs impact cash predictability.
Energy Costs: Fluctuating energy prices affect operational cash, especially for manufacturing businesses.

Warning Signs of Cash Flow Problems

Recognizing early warning signs helps prevent cash crises:

Operational Indicators:

Difficulty making payroll consistently
Delayed supplier payments
Increased reliance on credit lines
Declining cash reserves
Frequent overdraft fees

Financial Ratio Warnings:

Operating cash flow margin below 10%
Increasing days sales outstanding
Decreasing days payable outstanding
Declining current ratio
Negative free cash flow trends

Behavioural Changes:

Delaying equipment maintenance
Reducing inventory levels excessively
Cutting essential services
Avoiding growth opportunities due to cash constraints

Professional Help for Cash Flow Problems

Some cash problems require professional intervention beyond what business owners can handle alone.

When to Seek Help:

Consistently negative operating cash flow
Inability to meet payroll or critical payments
Creditor pressure and collection actions
Need for formal debt restructuring
Considering business closure due to cash issues

How A Licensed Insolvency Trustee Can Help:

Cash flow analysis: Comprehensive review of your financial situation
Debt restructuring: Formal proposals to creditors
Creditor negotiations: Professional representation in discussions
Business reorganization: Structured approach to financial recovery
Insolvency procedures: When necessary, formal bankruptcy protection, financial restructuring or liquidation processes

Real Success Story: A Hamilton company with annual cash deficits worked with our team to restructure supplier payments, implement better collection procedures, and negotiate with creditors through a formal financial restructuring process. Within six months, they achieved positive cash balances and avoided bankruptcy.

Building Long-Term Cash Flow Resilience

Surviving immediate cash problems is just the beginning. Building long-term resilience requires systematic changes:

Diversification Strategies:

Multiple revenue streams
Diversified customer base
Various supplier relationships
Multiple financing sources

Operational Improvements:

Efficient processes and systems
Strong financial controls
Regular performance monitoring
Continuous improvement culture

Financial Planning:

Regular cash forecasting
Scenario planning and stress testing
Emergency reserve building
Strategic investment planning

Government Resources and Support

Ontario and federal governments offer various programs to help businesses with cash challenges:

Ontario Programs:

Federal Programs:

Accessing Support:

Contact local economic development offices
Work with business advisors
Consult with accountants and lawyers
Engage with industry associations

Taking Action: Your Cash Flow Recovery Plan

If you’re facing cash challenges, here’s your action plan:

Immediate Steps (Next 7 Days):

Calculate your current cash position
Create a 13-week cash flow forecast
Contact customers with outstanding invoices
Review and postpone non-essential expenses
Communicate with key suppliers about payment timing

Short-Term Actions (Next 30 Days):

Implement automated invoicing systems
Negotiate extended payment terms with suppliers
Explore alternative financing options
Conduct a comprehensive expense audit
Seek professional advice if problems persist

Long-Term Strategy (Next 90 Days):

Develop comprehensive cash management systems
Build emergency cash reserves
Diversify revenue streams
Strengthen customer relationships
Create contingency plans for various scenarios

Frequently Asked Questions About Cash Flow

General Cash Flow Questions

Q: What’s the difference between cash flow and profit?

A: This is the most common confusion I see among Ontario business owners. Profit is an accounting measure that includes non-cash items like depreciation and uses accrual accounting principles. Cash flow shows actual money moving in and out of your business.

Q: How much cash should my business keep on hand?

A: Most Ontario businesses should maintain 3-6 months of operating expenses in cash reserves. However, this depends on your industry, seasonality, and revenue predictability. Seasonal businesses like landscaping or retail may need larger reserves to cover slow periods.

Q: How often should I review my cash flow?

A: I recommend weekly cash flow reviews for most businesses, with daily monitoring during tight periods. Monthly reviews aren’t frequent enough to prevent cash crises. Use a 13-week rolling forecast that you update weekly.

Q: Can a profitable business go bankrupt?

A: Absolutely. I’ve seen many profitable Ontario businesses fail because they couldn’t manage cash flow. If you can’t pay employees or suppliers when payments are due, profitability won’t save you. This is why cash management is more critical than profit management for business survival.

Cash Flow Forecasting

Q: What’s the best forecasting method for small businesses?

A: Start with a 13-week rolling forecast that you update weekly. This provides enough detail for immediate planning while being manageable for small business owners. Include three scenarios: best case, worst case, and most likely.

Q: How accurate should my cash flow forecasts be?

A: Aim for 85-90% accuracy in the first four weeks, 75-80% accuracy for weeks 5-8, and 70% accuracy for weeks 9-13. Perfect accuracy isn’t possible, but consistent forecasting improves your predictions over time.

Q: What happens if my forecast is consistently wrong?

A: Regular forecast errors indicate problems with your assumptions or process. Common issues include unrealistic sales projections, poor understanding of collection timing, or inadequate expense tracking. Review your historical data and adjust your forecasting methods.

Managing Cash Flow Problems

Q: My business has seasonal cash flow problems. What should I do?

A: Seasonal businesses need specialized cash management. Build cash reserves during strong seasons, establish seasonal credit lines, consider factoring receivables, and negotiate favourable payment terms with suppliers during the off-season. Many successful Ontario businesses use these strategies to smooth seasonal fluctuations.

Q: When should I seek professional help for cash flow problems?

A: Don’t wait until you’re missing payroll or facing creditor pressure. Seek help when you notice consistent negative operating cash, increasing reliance on credit lines, or difficulty making routine payments. Early intervention provides more options and better outcomes.

Q: Can I fix cash flow problems without borrowing money?

A: Often, yes. Many cash problems stem from poor collection practices, inefficient inventory management, or suboptimal payment timing. Before borrowing, try accelerating collections, optimizing inventory levels, and negotiating better payment terms with suppliers.

Collection and Payment Management

Q: How can I collect payments faster from customers?

A: Implement several strategies: invoice immediately upon delivery, offer early payment discounts (2/10 net 30), use automated collection systems, require deposits for large orders, and maintain clear payment terms. Consistent follow-up on overdue accounts is crucial.

Q: Should I offer early payment discounts?

A: Early payment discounts can improve cash flow, but calculate the true cost. A 2% discount for payment within 10 days instead of 30 days equals a 36% annual interest rate. Only offer discounts if the improved cash flow justifies the cost.

Q: How should I handle customers who consistently pay late?

A: Implement a progressive collection process: friendly reminders, formal notices, phone calls, and ultimately, collection agencies or legal action. Consider requiring cash on delivery or deposits from chronic late payers.

Financial Management

Q: What’s the most important cash flow metric to track?

A: Operating cash flow is the most critical metric because it shows whether your core business generates cash. If operating cash flow is consistently negative, you have a fundamental business model problem that needs immediate attention.

Q: How do I calculate my cash conversion cycle?

A: Cash Conversion Cycle = Days Sales Outstanding + Days Inventory Outstanding – Days Payable Outstanding. A shorter cycle means faster cash conversion. Most businesses should aim to minimize this cycle.

Q: Should I use debt to solve cash flow problems?

A: Debt can provide temporary relief but shouldn’t be your primary solution. Use debt strategically to bridge temporary gaps or fund growth that will improve cash flow. Don’t use debt to mask fundamental business problems.

Emergency Situations

Q: What should I do if I can’t make payroll?

A: This is a serious situation requiring immediate action. Contact your bank about emergency credit, consider factoring receivables, speak with employees about temporary arrangements, and seek professional help immediately. Don’t ignore the problem—it won’t resolve itself.

Q: When should I consider bankruptcy or insolvency procedures?

A: Consider formal insolvency procedures when you consistently cannot pay debts as they come due, creditors are taking legal action, or you’re facing business closure. A Licensed Insolvency Trustee can help you understand your options, which may include restructuring rather than bankruptcy.

Q: Can a Licensed Insolvency Trustee help before I’m insolvent?

A: Absolutely. Licensed Insolvency Trustees provide advisory services for businesses facing financial difficulties. We can help with cash flow analysis, creditor negotiations, and business restructuring to avoid insolvency. Early intervention often prevents bankruptcy.

Conclusion: Master Your Cash Flow, Secure Your Future

Cash management isn’t just about survival—it’s about creating the financial foundation for business growth and success. The Ontario business environment is challenging, but with proper cash management, your business can not only survive but thrive.

As a Licensed Insolvency Trustee who has helped many Ontario businesses overcome cash challenges, I’ve seen that businesses with committed owners who implement systematic cash management can overcome even severe financial difficulties.

The key is understanding your cash patterns, implementing proven management strategies, and seeking professional help when needed. Your business represents years of hard work and investment—don’t let cash problems destroy what you’ve built.

Remember, cash problems are temporary and solvable with the right approach. The businesses that succeed are those that take decisive action early and implement systematic improvements to their cash management.

If you’re struggling with business cash flow and debt issues, don’t wait for the situation to worsen. The key is to stay informed, act decisively, and seek professional help when needed. Whether you’re looking to grow your business or navigate financial difficulties, having the right support makes all the difference.

You’re not alone in this. There’s a path forward, and it starts with reaching out for the right kind of help. Take that step—you deserve it. If you’re a GTA resident dealing with overwhelming debt, don’t wait for your credit situation to get worse. As a licensed insolvency trustee serving Toronto, Mississauga, Brampton, Markham, and surrounding areas, I’m here to help you understand your options.

Free consultation available:

No obligation to proceed
Complete review of your Canadian business debt and credit situation
Practical next steps you can take immediately

Remember: Your current financial situation doesn’t define your future. With the right help and information, you can overcome both debt challenges and credit score problems.

As a licensed insolvency trustee serving the Greater Toronto Area, I encourage consumers and business owners to view financial difficulties not as failures but as challenges that can be addressed with proper guidance. By understanding the warning signs of insolvency and seeking professional advice early, many people and businesses can find a path forward – whether through restructuring, strategic changes, or in some cases, an orderly wind-down that protects their future opportunities.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

At the Ira Smith Team, we understand the financial and emotional components of debt struggles. We’ve seen how traditional approaches often fall short in today’s economic environment, so we focus on modern debt relief options that can help you avoid bankruptcy while still achieving financial freedom.

Brandon Blog Post

RELATED PARTY LOANS IN BANKRUPTCY: HUGE ATLANTIC SEA CUCUMBER CASE LESSONS FOR GTA BUSINESSES

Post author By Brandon Smith
Post date July 21, 2025

A recent Nova Scotia court decision shows how a related party loan when a business is insolvent has tricky rules that can leave the lender in a difficult situation when the borrower company goes bankrupt. The Atlantic Sea Cucumber Ltd. court decision shows how everything can go wrong when critical mistakes are made with related party business loans and security agreements.

As a Licensed Insolvency Trustee firm serving the Greater Toronto Area for over 20 years, we’ve seen similar disasters happen to local businesses. The good news? These problems are completely preventable when you know the business insolvency rules.

Need help with related party loan or your debt issues? Schedule your free consultation today – don’t wait until it’s too late.

A related party is anyone with close ties to your business. Under Canada’s insolvency legislation, the Bankruptcy and Insolvency Act (BIA), this includes:

You and your company – if you lend money to your own business
Sister companies – two companies owned by the same person
Family members – spouse, children, parents lending to your business
Connected entities – companies with shared ownership or control

Regular bank loans have strict rules, credit applications, other formal paperwork, and clear terms. Related party loans often rely on handshake deals or simple agreements downloaded from the internet.

In bankruptcy, courts scrutinize these “insider” deals carefully. They want to ensure related parties aren’t jumping ahead of other creditors or moving money around unfairly.

Warning: Courts can void related party security granted within 12 months of bankruptcy. This means your security becomes worthless, leaving you as an unsecured creditor.

Atlantic Sea Cucumber Case: The Facts

Let me walk you through the case that every business owner needs to understand: Atlantic Sea Cucumber Ltd. (Re), 2025 NSSC 234.

The Players

Atlantic Sea Cucumber Ltd. (ASC) – The company that went bankrupt
Atlantic Golden Age Holdings Inc. (AGAH) – ASC’s parent company (the related party lender)
Weihai Taiwei Haiyang Aquatic Food Co. Ltd. (WTH) – Major supplier owed $1.32 million

What Went Wrong

The trouble started with a shipment of sea cucumbers, which ASC claimed were “too salty.” This led to a massive legal battle. By February 2023, WTH won a $1.32 million court judgment against ASC.

ASC filed for bankruptcy protection through a Notice of Intention to Make A Proposal in May 2023. The restructuring failed, and there wasn’t enough money to pay everyone. AGAH claimed they should get paid first because they had “security” on ASC’s assets.

The court disagreed. Here’s why AGAH lost.

Why AGAH’s Security Failed: The Critical Mistakes

Mistake #1: “Spent” Security Problem

In 2018, AGAH lent money to ASC with proper security, as elementary as it was. But this loan was fully repaid by November 2020. The court ruled this made the security “spent” – like a used gift card with no value left.

When AGAH made new loans after 2020, they weren’t covered by the old security agreement.

Mistake #2: Last-Minute Paperwork

In March and April 2023, just weeks before bankruptcy, AGAH tried to register new security documents. The timing looked suspicious to the court.

The court’s message was clear: “Late efforts to paper over prior advances rarely work, especially when bankruptcy is looming.”

Mistake #3: Internet Security Agreements

The court noted AGAH’s original security agreement was “inelegant” and likely downloaded from the internet. As the judge said, “The internet is a lousy lawyer.”

Result: AGAH’s argument that the 2018 security agreement was really for a revolving line of credit, rather than a one-time advance, failed. It became an unsecured creditor, losing its priority position and likely getting very little or nothing in the bankruptcy.

1. Proper Transaction Test

The court must determine if related party transactions were “proper,” meaning fair and not designed to cheat other creditors.

The ruling: The 2018 loan was proper, but the 2023 security registration was not proper because it tried to benefit the related party at other creditors’ expense.

2. Void Against the Trustee

This is the most damaging concept for related parties. Even if security seems valid between two or more related parties, it can be “void against the trustee” in bankruptcy.

What this means: Licensed Insolvency Trustees can ignore your security and treat you as an unsecured creditor.

3. 12-Month Look-Back Rule

The BIA presumes related party security granted within 12 months of bankruptcy is void. You must prove it was proper and given for fair value.

Take action now: If your business has financial problems, don’t wait to fix related party loan documentation.

1. Document Everything Professionally

Never rely on:

Handshake agreements
Simple emails
Internet-downloaded forms
AI-generated documents

Always include:

Exact loan amounts
Interest rates
Repayment schedules
Specific collateral descriptions
Default conditions

2. Register Security Immediately

Don’t just sign documents. For personal property, you must register security with your province’s Personal Property Security Act (PPSA) system immediately. Real property security has a different registration system in each province.

In Ontario, this means proper (PPSA) registration that gives public notice to other creditors.

3. Act Before Crisis Hits

Don’t wait until:

Your business faces lawsuits
Cash flow problems emerge
Other creditors demand payment
Bankruptcy becomes likely

The window for proper related party loans closes quickly once financial trouble begins.

4. Get Professional Help Early

As a Licensed Insolvency Trustee firm in the GTA, we are debt professionals who help businesses structure related party transactions correctly from the start. We can work with your lawyer to:

Review existing related party loans
Ensure proper documentation and registration
Plan debt restructuring strategies
Protect your assets legally

Don’t learn these lessons the hard way. Contact us for a free consultation before problems arise.

Lessons for Other Creditors

If you’re owed money by a company with related party loans, have your lawyer investigate those claims. Improperly documented related party loans mean more money available for ordinary unsecured creditors. Also, make sure that you prove your debt by filing your proof of claim if you are an ordinary unsecured creditor. This gives you standing to act and even review what the Trustee is doing and, perhaps more importantly, not doing!

2. The Licensed Insolvency Trustee Protects You

The Licensed Insolvency Trustee’s job is to ensure fairness for all creditors (although that was not necessarily the case in the Atlantic Sea Cucumber matter). We investigate and challenge suspicious related party claims that unfairly benefit insiders.

3. Verify Security Claims

Before extending credit, verify any existing security registrations. This reveals problems with documentation or scope that could affect your recovery.

4. Speak Up About Unfair Deals

If you suspect unfair related party dealings in a bankruptcy, raise concerns with the Trustee. We can investigate and take legal action when necessary.

Any loan between a business and its owners, family members, or connected companies is a related party transaction requiring special documentation and scrutiny.

The BIA allows challenges to related party security granted within 12 months of bankruptcy. Earlier transactions may also be challenged if they’re improper.

You need professional loan agreements, promissory notes, security agreements, proof of advance(s) and proper PPSA or land registry registrations. Internet downloads, AI-generated forms and casual agreements don’t work.

Yes, but they must be documented professionally, registered immediately, and given for fair market value of cash advances or credit lines in the ordinary course of business when the company is financially healthy.

Improperly secured related party loans become unsecured debts, meaning they’re paid after trust claims and valid secured creditors and may receive nothing if assets are insufficient.

The Bottom Line: Don’t Cut Corners

The Atlantic Sea Cucumber case teaches us that related party loans require professional handling from day one. Waiting until financial trouble hits or relying on DIY legal documents almost always fails.

As the court noted: “Don’t cut corners on legal paperwork.” This is especially true for related party transactions that face extra scrutiny in bankruptcy.

Key Takeaways for GTA Businesses:

Document related party loans professionally – no internet forms or handshake deals
Register security immediately – don’t wait for financial trouble
Act while financially healthy – late efforts rarely work
Get expert help early – prevent problems before they start

Don’t let related party loan mistakes destroy your business like they did for Atlantic Sea Cucumber Ltd.

Ira Smith Trustee & Receiver Inc. has helped Greater Toronto Area businesses and consumers navigate complex debt situations for over 20 years. We understand the unique challenges of related party transactions and can help you:

Structure loans properly from the start
Review existing related party agreements
Navigate financial restructuring
Protect your interests in bankruptcy proceedings

Take action now – contact us for a free, confidential consultation. Don’t wait until it’s too late to fix these critical issues.

Ira Smith Trustee & Receiver Inc. is a Licensed Insolvency Trustee firm serving consumers, entrepreneurs, and businesses in the Greater Toronto Area. Brandon Smith has 19 years of experience, and Ira Smith has 45 years of experience in the Greater Toronto Area insolvency marketplace. We specialize in helping clients navigate complex debt situations, business restructuring, and if required as a last resort, bankruptcy proceedings. Licensed and supervised by the Office of the Superintendent of Bankruptcy Canada and its local Official Receiver.

Contact Information:

Phone: 647.799.3312
Email: ira@irasmithinc.com or brandon@irasmithinc.com
Office: 167 Applewood Crescent #6, Vaughan, ON L4K 4K7
Website: https://irasmithinc.com

Brandon Blog Post

BANKRUPTCY STAY OF PROCEEDINGS, EVICTION, AND ONTARIO LAW: WHEN HUGE TENANCY TROUBLES COLLIDE

Post author By Brandon Smith
Post date July 7, 2025

What is a Stay of Proceedings?

A stay of proceedings is like hitting the pause button on debt collection. When you file an assignment in bankruptcy, a consumer proposal or a Notice of Intention To Make A Proposal in Ontario, this legal protection automatically stops most unsecured creditors from taking collection action against you. If a claim is one purely for the collection of a debt advanced by one or more unsecured creditors, otherwise known as a claim provable in a bankruptcy or consumer proposal, then the stay of proceedings applies. But what happens when the legal action is not for the collection of a debt, like when an eviction is involved? A recent Ontario court case shows how complex this can get.

Understanding Stay of Proceedings in Canada

The Basics of Stay Protection

Under Canada’s Bankruptcy and Insolvency Act (BIA), a stay of proceedings provides immediate relief from:

Debt collection lawsuits
Wage garnishments
Asset seizures
Harassing creditor collection calls and collection agency calls

This protection starts the moment you file for bankruptcy or a consumer proposal with a Licensed Insolvency Trustee in your bankruptcy jurisdiction.

How Long Does a Stay of Proceedings Last?

The duration depends on your filing type:

First-time bankruptcy: Usually 9 months (21 months with surplus income)
Consumer proposal: Remains active while you make payments (up to 5 years)
Notice of Intention To Make A Proposal: This is a preliminary filing before filing a restructuring Division One Proposal for the benefit of creditors, where you don’t qualify to make a consumer proposal. The timeline is similar to that of a consumer proposal

Stay of Proceedings and Eviction: A Real Ontario Case

The Snaith Case: What Happened

A recent Ontario Superior Court of Justice – Ontario In Bankruptcy and Insolvency case (Re Snaith, 2025 ONSC 3413) shows what happens when bankruptcy meets eviction. Here’s the story:

Leanna Mae Snaith owed $46,250 in rent arrears by January 2025. Despite making some payments, she couldn’t catch up. The Landlord and Tenant Board ordered her eviction unless she paid $47,986 by February 28, 2025.

When Ms. Snaith couldn’t pay, she filed for bankruptcy in April 2025, hoping the stay of proceedings would stop her eviction.

Why the Stay Didn’t Stop the Eviction

The court made several key points:

Eviction orders aren’t debt collection: The tenancy was already terminated before bankruptcy
Post-bankruptcy rent must be paid: New rent after filing isn’t discharged in bankruptcy
Prior court orders remain valid: The eviction order was made before the bankruptcy filing

When Stay of Proceedings Doesn’t Apply

Exceptions to Stay Protection

A stay of proceedings doesn’t stop everything. It doesn’t apply to:

Criminal court cases
Family support payments (child support, spousal support)
Some secured creditor actions
Eviction enforcement when the tenancy was already terminated

Getting Around Stay Protection

Creditors can ask the court to “lift the stay” in certain situations. Under the BIA, the court has the authority to lift the stay if the person requesting the authority to begin or continue their action is likely to suffer material prejudice or if it is equitable on other grounds.

However, in eviction cases, landlords often don’t need to do this if the tenancy ended before bankruptcy.

Stay of Proceedings: What Tenants Need to Know

Can Bankruptcy Stop My Eviction?

The short answer: probably not if you’re already facing eviction.

Before eviction proceedings: A stay might pause the process temporarily
After eviction order: The stay won’t usually stop enforcement
Current rent: You must keep paying rent during bankruptcy

Smart Strategies for Rent Problems

If you’re behind on rent:

Act early: File for bankruptcy or a consumer proposal before eviction proceedings start
Keep paying current rent: Post-filing rent isn’t protected by the stay
Get professional help: Licensed Insolvency Trustees understand these complex rules

Stay of Proceedings: What Landlords Should Know

Your Rights During Tenant Bankruptcy

As a landlord, you should know:

Pre-bankruptcy rent arrears: These become unsecured debts in bankruptcy
Post-bankruptcy rent: Fully collectible and can lead to eviction
Eviction timing: File early to avoid stay complications

Working with Sheriff’s Offices

The Snaith case revealed confusion even among enforcement officers. Some sheriff’s offices won’t enforce evictions during bankruptcy, even when they legally can. You might need a court order confirming your right to proceed as was the case here.

Consumer Proposals vs. Bankruptcy: Stay Differences

Consumer Proposal Stay Benefits

A consumer proposal offers a stay of proceedings while potentially providing better outcomes:

Keep your home (if you can afford the payments)
Paying a portion of your debts
Protection lasts for the duration of the consumer proposal as long as you are meeting your payment obligations (usually up to 5 years)

Bankruptcy Stay Limitations

Bankruptcy provides immediate stay protection, but:

You will lose non-exempt assets
Post-bankruptcy obligations remain
Unless there are extenuating circumstances causing a longer period, the bankrupt will normally be discharged between 9 months (first time bankruptcy and no surplus income) and 21 months (first time bankruptcy with surplus income requirement)

Professional Guidance: Why You Need a Licensed Insolvency Trustee

The Snaith case shows how complex stay of proceedings rules can be. As Licensed Insolvency Trustees in the Greater Toronto Area, we help by:

Explaining how stays apply to your specific situation
Timing filings for maximum protection
Handling creditor communications
Ensuring compliance with legal requirements

Avoiding Common Mistakes

Many people misunderstand stay protection. We’ve seen clients assume bankruptcy solves everything, only to face continued problems with:

Housing costs
Post-filing obligations
Non-dischargeable debts

FAQs About Stay of Proceedings

Does a stay of proceedings stop all creditors?

No. While most creditors must stop collection, some exceptions exist. Secured creditors, family support, and certain government actions may continue.

Can I get evicted during bankruptcy?

Yes, especially if eviction proceedings started before bankruptcy or if you don’t pay current rent.

How quickly does stay protection start?

Stay of proceedings protection begins immediately upon filing bankruptcy or a consumer proposal.

What happens if I violate the stay conditions?

Courts can lift the stay, removing your protection and allowing creditor actions to resume.

Getting Help with Stay of Proceedings Issues

If you’re facing debt problems and potential eviction, don’t wait. Early action often provides better options and stronger stay of proceedings protection. The longer you wait, the fewer options you might have. Contact a Licensed Insolvency Trustee today for a free consultation.

At Ira Smith Trustee & Receiver Inc., we’ve helped Ontario residents and companies overcome their debt challenges, starting with honest, professional advice. We’ll review your complete financial situation, explain all your options, and help you choose the best path forward.

Remember: you don’t need to pay someone to access professional help. Our help starts with a free consultation and continues with transparent, regulated services designed to get you back on your financial feet.

Remember: Your current financial situation doesn’t define your future. With the right help and information, you can overcome debt challenges.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help entrepreneurs understand their options and find a path forward during financial challenges.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

Brandon Blog Post

CANADIAN BUSINESSES CHALLENGES AND OPPORTUNITIES IN 2025: A LICENSED INSOLVENCY TRUSTEE’S COMPLETE GUIDE

Post author By Brandon Smith
Post date June 16, 2025

Canadian Businesses Introduction

As a Licensed Insolvency Trustee firm serving the Greater Toronto Area for over 20 years, we’ve seen Canadian businesses go through many ups and downs. Right now, we’re facing some tough times that remind me of the beginning of the 2008-2009 financial crisis. But there’s more to the story than just bad news.

Let me share what I’m seeing on the ground and what it means for owners of Canadian businesses like yours.

Overview of the Canadian Business Environment

The Canadian business landscape in 2025 is complex. While some large corporations are doing well, many small and medium Canadian businesses are struggling. This creates a two-speed economy depending on company size, which affects different sectors in different ways.

Current Economic Indicators

Recent data from Statistics Canada shows mixed signals for Canadian businesses:

Corporate profits rose by $4.2 billion in Q1 2025
The Canadian Small Business Health Index dropped to 99.3
Canadian businesses’ delinquencies are at their highest since 2009
Credit demand from businesses has slowed significantly

These numbers tell us that while big companies might be profitable, smaller Canadian businesses are having a harder time. This gap is important because small businesses employ millions of Canadians and drive local economies.

Regional Differences Across Canada

Not all provinces are experiencing the same challenges. Ontario and British Columbia are seeing the biggest increases in Canadian businesses‘ financial stress:

Ontario business arrears have jumped by 19%
British Columbia business debt has risen by 20%
The Prairie provinces and Atlantic Canada are facing their unique challenges

These regional differences matter because they show how national policies and global events affect different areas of Canada in unique ways.

Key Economic Drivers

Several factors are shaping the Canadian business environment:

Energy Sector Impact: Canada’s energy sector continues to influence the overall economy, though renewable energy investments are growing.

Technology Adoption: Canadian businesses that adapted to digital tools during COVID-19 are generally performing better than those that didn’t.

Supply Chain Resilience: Companies with diversified supply chains are handling current challenges better than those dependent on single sources.

Challenges in the Canadian Business Landscape

Canadian businesses face several major challenges right now. Understanding these helps explain why so many companies are struggling with their finances.

Rising Business Delinquencies

The numbers are concerning. Canadian businesses’ delinquencies have reached levels not seen since the 2009 financial crisis. This means more companies are falling behind on their payments to suppliers, landlords, and lenders.

What does this mean for you as a business owner?

Cash flow problems become more common
It’s harder to get credit when you need it
Suppliers may demand payment up front
Your customers might pay you later (or not at all)

Impact of Trade Tensions

The ongoing trade dispute with the United States is hitting our interconnected trade relationship with the USA and, therefore, Canadian businesses hard. When politicians in Washington announce new tariffs or trade policies requiring a new agreement on trade, it affects your business here in Canada.

Here’s how trade tensions hurt Canadian business:

Supply Chain Disruptions: Products you need might be delayed or cost more. One business owner told me, “I never thought a tweet could shut down my supplies.”

Increased Costs: Tariffs make imported goods more expensive, which squeezes your profit margins.

Uncertainty: It’s hard to plan for the future when trade rules keep changing.

Customer Impact: Higher costs often mean higher prices, which can drive away customers.

Credit Market Tightening

Banks and other lenders are being more careful about who they lend money to. This creates a problem for Canadian businesses that need financing to grow or even survive.

Signs of credit tightening include:

Longer approval times for business loans
Higher interest rates
More paperwork and requirements
Smaller loan amounts are being approved

Regulatory and Tax Pressures

Many business owners feel overwhelmed by government regulations and taxes. While some rules protect workers and consumers, they can also make it harder to run profitable Canadian businesses.

Common regulatory challenges include:

Complex tax requirements
Employment standards compliance
Environmental regulations
Industry-specific rules and licensing

Lingering Effects of COVID-19

The pandemic changed how we do business, and some of those changes are still causing problems. Many Canadian businesses are still dealing with:

Higher operating costs
Changed customer behaviours
Staffing shortages
Debt taken on during lockdowns

Opportunities for Canadian Business Growth Strategies and Expansion

Despite the challenges, there are real opportunities for Canadian businesses that position themselves correctly. Smart business owners who are innovative leaders are finding ways to succeed even in tough times.

Digital Transformation Advantages

Canadian businesses that embrace technology are often doing better than those that don’t. The pandemic forced many companies to go digital, and those that did it well are seeing benefits.

Digital opportunities include:

E-commerce Growth: Online sales continue to grow, even as physical stores struggle.

Remote Work Benefits: Companies can hire talent from anywhere and reduce office costs.

Automation Savings: Technology can reduce labour costs and improve efficiency.

Better Customer Data: Digital tools help you understand your customers better.

Market Consolidation Opportunities

When times are tough, weaker competitors often exit the market. This creates opportunities for stronger Canadian businesses to:

Acquire competitors at lower prices
Hire experienced employees from failing companies
Take over market share from Canadian businesses that close
Negotiate better deals with suppliers

Government Support Programs

Various levels of government offer support programs for Canadian businesses. These can provide crucial help during difficult times:

Federal Programs:

Canada Emergency Business Account (CEBA) extension
Export development funding
Innovation grants and tax credits

Provincial Programs:

Ontario Small Business Support Grant
British Columbia Recovery Grant programs
Industry-specific support initiatives

Municipal Programs:

Property tax deferrals
Local development incentives
Small business support funds

Sector-Specific Growth Areas

Some industries are growing despite overall economic challenges:

Healthcare and Senior Services: Canada’s aging population creates opportunities in healthcare, home care, and senior services.

Green Technology: Government commitments to climate goals mean funding and opportunities for clean technology businesses.

Professional Services: As Canadian businesses face complex challenges, there’s a growing demand for legal, accounting, and consulting services.

Essential Services: Canadian businesses that provide necessities often remain stable during economic downturns.

When Canadian Business Financial Challenges Become Too Much

Sometimes, despite best efforts, Canadian businesses face financial problems that seem impossible to solve. This is where my expertise as a Licensed Insolvency Trustee becomes valuable.

Warning Signs to Watch For

If your business shows these signs, it’s time to get professional help:

Consistently late on payments to suppliers
Difficulty making payroll
Maxed out credit lines
Receiving demand letters or legal notices
Customers are complaining about delayed orders
Losing key employees due to unpaid wages

How Professional Help Can Make a Difference

As a Licensed Insolvency Trustee, I help Canadian businesses and their owners navigate financial difficulties. My services include:

Business Restructuring: Sometimes, a business can be saved with the right restructuring plan. This might involve negotiating with creditors, reorganizing operations, or finding new financing.

Asset Sales: If a business can’t continue, I can help maximize the value of its assets through organized sales processes.

Personal Insolvency Solutions: When business debts affect personal finances, I provide options like consumer proposals or personal bankruptcy to give owners a fresh start.

Creditor Negotiations: I work with creditors to find solutions that work for everyone involved.

Advisory Services: I provide actionable advice to develop a roadmap for you to follow, where there is a way for company management to carry out a self-help restructuring without resorting to a formal insolvency process.

The Importance of Acting Early

The earlier you seek help, the more options you have. Many business owners wait too long, thinking things will improve on their own. While optimism is important, it’s also crucial to be realistic about your situation.

Early intervention can:

Preserve more of your business value
Protect your personal assets
Maintain relationships with key employees and customers
Provide more restructuring options

Looking Forward: What Canadian Business Owners Should Do

The current environment is challenging, but it’s not hopeless. Here’s my advice for Canadian business owners:

Focus on Cash Flow Management

Cash flow is the lifeblood of Canadian businesses. In tough times, it becomes even more critical:

Monitor your cash flow weekly, not monthly
Speed up collections from customers
Negotiate better payment terms with suppliers
Keep detailed records of all financial transactions

Build Strong Professional Relationships

Having the right advisors can make all the difference:

Work with an experienced accountant
Maintain relationships with multiple lenders
Know when to consult with legal counsel to solve pressing legal issues
Have a Licensed Insolvency Trustee you can call if needed

Stay Informed and Adaptable

The business environment is changing rapidly. Stay informed about:

Government service support programs
Industry trends and opportunities
Regulatory changes that affect your business
Economic indicators that impact your sector

Plan for Multiple Scenarios

Don’t just plan for success – plan for different possibilities:

Best case: How will you handle rapid growth?
Worst case: What will you do if revenue drops significantly?
Most likely case: What’s your realistic path forward?

Canadian Businesses Conclusion

The Canadian business environment in 2025 presents both significant challenges and real opportunities. While business delinquencies are rising and credit markets are tightening, there are still paths to success for well-managed companies.

The key is to stay informed, act decisively, and seek professional help when needed. Whether you’re looking to grow your business or navigate financial difficulties, having the right support makes all the difference.

Free consultation available:

No obligation to proceed
Complete review of your Canadian business debt and credit situation
Practical next steps you can take immediately

Remember: Your current financial situation doesn’t define your future. With the right help and information, you can overcome both debt challenges and credit score problems.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help Canadian entrepreneurs with understand their options and find a path forward during financial challenges.

Tags business challenges Canada, business financial difficulties, business insolvency Canada, business restructuring Canada, canadian business, Canadian business environment, Canadian business landscape, canadian businesses, Canadian company, Canadian entrepreneurs, Company size, Greater Toronto Area insolvency trustee, growth strategies, Ira Smith Trustee, legal issues, licensed insolvency trustee, Ontario business, Toronto business advisor

Brandon Blog Post

EQUIFAX CREDIT SCORE RESET TO ZERO? GTA DEBT RELIEF EXPERT REVEALS HIDDEN TRUTH

Post author By Brandon Smith
Post date June 2, 2025

Are you struggling with debt in Toronto, Vaughan, Newmarket, Mississauga, or anywhere else in the Greater Toronto Area? Your Equifax credit score might be telling a story you didn’t expect. As a licensed insolvency trustee serving the GTA, I’ve seen how credit score surprises can impact families when they need financial help most.

What is an Equifax Credit Score?

Your Equifax credit score is a three-digit number between 300 and 900 that represents your creditworthiness to Canadian lenders. Think of it as your financial report card—it tells banks, credit card companies, and other lenders how likely you are to pay back money you borrow.

Why Equifax Canada matters:

One of the two major credit bureaus (along with TransUnion)
Used by most major Canadian banks and lenders
Influences your ability to get mortgages, car loans, and credit cards
Affects the interest rates you’ll be offered

Understanding Equifax Credit Score Ranges

Here’s what your Equifax credit score means:

800-900 (Excellent): You’ll get the best rates and terms
720-799 (Very Good): Strong credit with good loan options
650-719 (Good): Average credit, decent loan terms available
560-649 (Fair): Below average, higher rates and fewer options
300-559 (Poor): Difficulty getting approved for credit

The reality for GTA residents: If you’re struggling with debt, your score might be in the fair or poor range. But here’s the shocking truth—sometimes even people with good financial habits face unexpected credit score problems.

The Shocking Truth About Equifax Credit Scores in Canada

Your Equifax credit score is more than just a number—it’s your financial passport in Canada. But what happens when that passport gets taken away without warning?

David Tregear from Victoria, BC, thought he was doing everything right. He paid his bills on time and lived debt-free for two years. Then he applied for a car loan and got rejected. When he checked his Equifax credit score, he couldn’t believe what he saw: ZERO. Not a low score—completely erased.

This isn’t a one-off story. It’s happening to Canadians across the country, including right here in the GTA.

How Your Equifax Credit Score Can Disappear (And Why It Matters)

Here’s what Equifax Canada doesn’t tell you: if you don’t use credit for about two years, they can reset your credit score to zero. No warning. No second chances. You become “unscorable.”

Why this matters for GTA residents:

Many Toronto-area lenders use Equifax Canada as their primary credit bureau
A missing Equifax credit score can block you from getting a mortgage, car loan, or even a credit card
TransUnion (the other major credit bureau) doesn’t have this same policy
Your financial options can disappear overnight

How to Access Your Equifax Credit Score

Online Access (Easiest Method):

Visit Equifax.ca and create a free account
Use the Equifax Canada mobile app for quick checks
Get one free credit report per year, plus monthly score updates with paid plans

Other Access Methods:

By phone: Call 1-800-465-7166
By mail: Send a written request to Equifax Canada
In-person: Visit Equifax Canada offices (limited locations)

For GTA residents: Online access is fastest, but if you’re dealing with serious debt issues, sometimes speaking to someone directly helps clarify your options.

Factors That Influence Your Equifax Credit Score

Understanding what affects your score helps explain why it might be low, or why it disappeared entirely:

Payment History (35% of your score)

Late payments hurt your score significantly
Missing payments for 30+ days show up on your report
Bankruptcy and consumer proposals appear here, too

Credit Utilization (30% of your score)

How much of your available credit are you using
Using more than 30% of your credit limit hurts your score
Maxed-out credit cards are major red flags

Length of Credit History (15% of your score)

How long have you had credit accounts
Average age of all your accounts
This is where the “unscorable” problem happens—no recent activity can reset your score

Types of Credit (10% of your score)

A mix of credit cards, loans, and mortgages
Shows you can handle different types of credit

Credit Inquiries (10% of your score)

Hard inquiries from loan applications
Too many inquiries in a short period hurt your score

The debt connection: When you’re overwhelmed by debt, multiple factors work against you—high utilization, missed payments, and desperate applications for more credit.

When Debt Problems Meet Credit Score Problems

As a licensed insolvency trustee in the GTA, I see clients facing double trouble: overwhelming debt AND damaged credit scores. Here’s what I’ve learned:

The Debt-Credit Score Cycle

When you’re drowning in debt, you might think avoiding credit is smart. But if your Equifax credit score gets reset to zero, rebuilding becomes nearly impossible. You can’t get approved for new credit to rebuild your score.

Comparing Equifax with TransUnion: Why It Matters

Key differences between Canada’s credit bureaus:

Scoring Models

Equifax: Uses a 300-900 range, focuses heavily on payment history
TransUnion: Also 300-900 range, but weighs factors slightly differently
Your scores may differ between bureaus based on which lenders report to whom

The “Unscorable” Problem

Equifax: Can reset your score to zero after about 2 years of inactivity
TransUnion: Doesn’t have the same reset policy
Result: You might be scoreable on one bureau but not the other

Lender Preferences

Some GTA financial institutions prefer Equifax
Others use TransUnion
Many check both, but if one shows “unscorable,” you might be denied

Why this matters for debt relief: When considering consumer proposals or other debt solutions, we need to understand which bureau lenders will check and plan accordingly.

How to Get Your Free Equifax Credit Report

Step-by-Step Guide:

Visit Equifax.ca and click “Get My Free Credit Report.”
Verify your identity with personal information
Answer security questions based on your credit history
Review your report carefully for accuracy
Download or print for your records

Protecting your information:

Only use the official Equifax.ca website
Never give your SIN over unsolicited phone calls
Review reports regularly for identity theft signs
Dispute errors immediately

Red flag for GTA residents: If you can’t access your report online or get “insufficient information” errors, you might be facing the “unscorable” problem.

Tools for Improving Your Equifax Credit Score

If You Can Still Get Credit:

Pay bills on time: Set up automatic payments
Lower credit utilization: Keep balances under 30% of limits
Don’t close old accounts: Length of history matters
Limit new applications: Each inquiry temporarily lowers your score

If You’re Struggling with Debt:

Don’t ignore the problem: Credit scores recover faster than you think with proper help
Consider debt consolidation: One payment instead of many
Explore the consumer proposal process: Can eliminate up to 80% of debt while protecting assets
Understand bankruptcy options: Sometimes it’s the fastest path to rebuilding credit

Premium Equifax Services

Equifax Complete™ Family Plan:

Monthly credit score updates
Credit monitoring and alerts
Identity theft protection
Costs around $25-35/month

Equifax ID Patrol™:

Advanced identity monitoring
Dark web scanning
Recovery assistance if identity is stolen

My recommendation for debt-struggling families: Free credit reports are sufficient while you’re getting your finances back on track. Save the monthly fees for debt payments instead.

The Role of Credit History in Your Financial Recovery

How Long-Term Credit Behaviour Affects Your Options

Good credit history before debt problems:

Makes you a better candidate for debt consolidation loans
Can help negotiate better terms with creditors
Provides more options for financial recovery

Poor credit history:

Doesn’t disqualify you from debt relief options
Consumer proposals work regardless of credit score
Bankruptcy in Ontario provides fresh start opportunities

The “unscorable” situation:

Creates unique challenges but doesn’t eliminate options
May require secured credit cards to rebuild
Licensed insolvency trustees can provide specific guidance

Real Stories from GTA Clients

I’ve helped families in Toronto, Vaughan, Newmarket, Scarborough, Brampton, and North York who discovered their Equifax credit score issues only when applying for debt consolidation loans. By then, their options were limited, but never eliminated.

Your Equifax Credit Score and Debt Solutions: What You Need to Know

Consumer Proposals and Your Credit Score

If you’re considering a consumer proposal in Ontario, here’s how it affects your Equifax credit score:

A consumer proposal shows as an R7 rating on your Equifax credit report
This stays on your report for 3 years after completion
It’s better than bankruptcy (R9 rating), which stays for 6-7 years
You keep your assets while getting debt relief

Bankruptcy and Credit Rebuilding

For some GTA residents, bankruptcy is the best fresh start option:

First-time bankruptcy typically lasts 9 months in Ontario
Your Equifax credit score will rebuild faster than you think
We help clients understand the credit rebuilding process from day one

Protecting Your Equifax Credit Score: Practical Tips for GTA Residents

Monitor Your Score Regularly

Check your Equifax credit score every few months
Look for the “unscorable” warning before it’s too late
Keep one small credit account active if you can manage it responsibly

Know Your Rights

Equifax Canada must investigate disputes within 30 days
You can add a consumer statement to your credit file
Provincial and federal agencies can help with serious issues

Don’t Wait Until It’s Too Late

If you’re struggling with debt in Toronto, Vaughan, Mississauga, Markham, or anywhere in the GTA, don’t wait for credit problems to compound your debt problems.

Red Flags: When to Seek Help with Debt and Credit Issues

Contact a licensed insolvency trustee if you’re experiencing:

Minimum payments that barely cover interest
Using credit cards for basic expenses like groceries
Considering payday loans or high-interest alternatives
Credit applications are being denied due to debt levels
Stress about money is affecting your daily life

How We Help GTA Residents Navigate Debt and Credit Challenges

As your local licensed insolvency trustee, I provide:

Free Consultations

Review your complete financial situation
Explain how debt solutions affect your Equifax credit score
Discuss all options before you make any decisions

Personalized Debt Solutions

Consumer proposals that can reduce debt by up to 80%
Bankruptcy protection when it’s the right choice
Credit rebuilding guidance throughout the process

Local GTA Knowledge

Understanding of Ontario employment standards and exemptions
Connections with local credit counselling services
Knowledge of the GTA housing market impacts on financial decisions

The Bottom Line: Don’t Let Credit Score Confusion Add to Your Debt Stress

Your Equifax credit score is important, but it shouldn’t control your life. Whether your score is perfect, damaged, or mysteriously missing, there are always options for Canadians struggling with debt.

David Tregear’s story shows us that even people who think they’re doing everything right can face credit surprises. Don’t let debt problems and credit score issues compound each other.

Frequently Asked Questions About Equifax Credit Scores and Debt

How do debt problems relate to Equifax credit score problems?

Debt problems and low Equifax credit scores often form a difficult cycle. When overwhelmed by debt, individuals may miss payments (hurting payment history), use a high percentage of their available credit (increasing utilization), and potentially apply for more credit, leading to multiple inquiries. If, in an attempt to manage debt, someone stops using credit entirely for about two years, their Equifax score can reset to zero, making it almost impossible to rebuild credit through conventional means.

Can a consumer proposal improve my Equifax credit score?

A consumer proposal will initially lower your Equifax credit score, but it provides a clear path to rebuilding credit while eliminating unmanageable debt.

How long does it take to rebuild credit after bankruptcy?

Most clients see their Equifax credit score improve within 12-18 months of discharge with proper credit rebuilding strategies.

Should I check my Equifax credit score if I’m already in debt trouble?

Yes. Understanding your current credit situation helps determine the best debt relief strategy for your specific circumstances.

Can I get a mortgage in the GTA after a consumer proposal?

Many clients successfully obtain mortgages 1-2 years after completing a consumer proposal, often with better terms than they had while struggling with debt.

Take Action Today

If you’re a GTA resident dealing with overwhelming debt, don’t wait for your credit situation to get worse. As a licensed insolvency trustee serving Toronto, Mississauga, Brampton, Markham, and surrounding areas, I’m here to help you understand your options.

Free consultation available:

No obligation to proceed
Complete review of your debt and credit situation
Clear explanation of how debt solutions affect your Equifax credit score
Practical next steps you can take immediately

Remember: Your current financial situation doesn’t define your future. With the right help and information, you can overcome both debt challenges and credit score problems.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help entrepreneurs understand their options and find a path forward during financial challenges.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

Tags bankruptcy in ontario, bills on time, consumer proposal process, credit bureau, credit card, credit history, credit monitoring, credit reports, credit score, credit score range, David Tregear, debt payments, Equifax Canada, equifax credit score, financial institutions, Ira Smith Trustee, late payment, payment history, type of credit

Brandon Blog Post

PAYING CREDITORS BEFORE BANKRUPTCY? ONTARIO COURT’S $400,000 DECISION CHANGES EVERYTHING

Post author By Brandon Smith
Post date May 26, 2025

A Recent Ontario Court Decision Every Business Owner Should Know About

As a Licensed Insolvency Trustee practicing in the Greater Toronto Area, I’ve guided many businesses through difficult financial times. Today, I want to share an important recent court decision showing the legal development of how companies handle creditor payments when facing money troubles.

What Happened: The $400,000 Payment That Backfired

The Court of Appeal for Ontario recently made a big decision in a legal action called RPG Receivables Purchase Group Inc. v. American Pacific Corporation (released May 15, 2025).

Here’s what happened in simple terms:

A company called Specialty Chemical Industries was struggling financially
They owed over $11 million to various parties in respect of various secured loans and unsecured creditor suppliers’ unpaid debts
One supplier, American Pacific Corporation (AmPac), was their main supplier
Specialty paid AmPac $400,000 to get $100,000 worth of chemicals
They hoped this would help them fill an order for their main customer
Less than two months later, Specialty went bankrupt

The court ruled that this $400,000 unsecured debt payment was a “preference” – meaning Specialty unfairly favoured one creditor (AmPac) over all their other creditors. AmPac was ordered to return the money.

Creditor vs. Debtor: What Is a Creditor Preference?

When a business is going under, the law says all creditors should be treated fairly. Section 95 of the Bankruptcy and Insolvency Act (BIA) calls this “creditor equality.”

A preference happens when:

A debtor pays one creditor shortly before bankruptcy (within 3 months)
This payment gives the payee better treatment than others
The debtor knew it couldn’t pay all its debts

The law assumes any payment made within 3 months of bankruptcy was intended to prefer that payee. It’s up to the business to prove otherwise.

Why Did Specialty’s “Business Survival” Argument Fail?

The argument was that Specialty paid AmPac under unsecured credit terms because they needed to keep their business going. It was argued this wasn’t preferring one over others – it was trying to save the company for everyone’s benefit.

The court didn’t buy this argument. Here’s why:

No solid plan: Specialty had no clear plan showing how this payment would help the company and all stakeholders
Poor financial position: After the payment, they had only $35,000 left but owed $11 million
Low profit margins: Their profit margins were only 2-10%, not enough to dig out of debt
No testimony: No company director testified to explain their plan
Failed strategy: Their main customer left anyway

FULL DISCLOSURE: My Firm was the licensed insolvency trustee administering the company director’s bankruptcy. The personal bankruptcy occurred by the court issuing a Bankruptcy Order in January 2019, through a legal proceeding initiated by RPG. Both the director and my Firm have since been discharged. My Firm was not involved in this court case I am writing about.

What This Means for Your Business

If your business is facing financial problems, this case offers important lessons:

Do:

Treat all creditors fairly if you’re approaching insolvency
Document your business plans that show how payments benefit all stakeholders
Seek professional advice early from a Licensed Insolvency Trustee

Don’t:

Pay one unsecured party a large sum when you can’t pay others
Make last-minute payments, hoping to save your business without a solid plan
Assume “business necessity” justifies preferring one over another

I often see business owners make decisions based on hope rather than reality when facing financial trouble. They think, “If I just pay this one supplier, I can keep going.”

The court’s message is clear: hope isn’t enough. If you can’t prove your plan truly benefits all stakeholders,, not just one, the payment could be considered a preference and later clawed back.

Key Takeaways

All unsecureds rank equally under bankruptcy law
Payments made shortly before bankruptcy are carefully scrutinized
Commercial pressure doesn’t justify preferring one over another
Only evidence-based rescue plans can justify paying one over others

Protecting Your Business from Preference Issues

As a business owner, you need to understand these rules before financial troubles hit. If you’re struggling to manage all your payments, it’s time to speak with a Licensed Insolvency Trustee about your options.

We can help you develop strategies that comply with the law while giving your business the best chance for recovery, or at least ensure you will not be giving yourself bigger headaches and legal liability if bankruptcy becomes necessary.

Final Thoughts on Fairness

The law may seem harsh, but it serves an important purpose: ensuring everyone is treated fairly when a business fails. Without these rules, stronger or favoured suppliers would get paid while others get nothing.

Remember: when it comes to creditor treatment during financial distress, good intentions aren’t enough. The law demands fairness – even when that’s difficult.

Preference FAQ: Your Questions Answered

What exactly does “anti-preference” mean in bankruptcy law?

The anti-preference rules in the BIA stop businesses from playing favourites when they’re about to go bankrupt. These rules make sure all regular unsecureds are treated fairly and share equally in whatever assets are left. This is the cornerstone of Canadian bankruptcy law – fairness for all stakeholders.

When might a payment to a creditor be considered unfair?

A payment might be considered unfair (or “void”) when:

It’s made within 3 months before bankruptcy
It’s made while the business can’t pay all its debts
It gives that party better treatment than others

If these conditions are met, the court assumes the payment was meant to give special treatment.

What is a “rebuttable presumption” regarding creditor payments?

This legal term simply means the court starts by assuming any payment made to a creditor within 3 months of bankruptcy was intended to favour them. It’s then up to the business to prove this wasn’t their intention. Even if a creditor was putting pressure on the business, that pressure alone isn’t enough to justify the payment.

Can a business explain that they were under pressure from a creditor?

Yes, but with limits. A business can tell the court about pressure put on them to help explain their situation, but pressure alone won’t justify the payment. The court will consider this information as part of the whole picture, not as a valid reason for favouring one over others.

How can a business prove they weren’t trying to favour one creditor?

A business must show that its main goal wasn’t to give one stakeholder special treatment. They need to prove, with clear evidence, that they had a different reason for making the payment, like trying to keep the business going with a solid plan that would benefit all stakeholders in the long run.

When is “trying to save the business” a valid reason for paying just one creditor?

This reason only works if the business had a realistic plan that would help everyone, not just one. Having a vague hope or wish isn’t enough. The business needs to show:

A sensible business plan
Evidence that the plan could realistically work
Proof that the plan would benefit all stakeholders, not just one
That the financial situation wasn’t already hopeless

Why does a business continuity plan need to be “reasonable”?

The “reasonable plan” requirement ensures businesses don’t drain their remaining assets, helping one or two parties while leaving nothing for everyone else. A reasonable plan aligns with bankruptcy law’s core purpose – fair treatment for all. If a payment is part of a genuine strategy that could improve the situation for everyone, then it isn’t considered unfair to others.

What factors do courts look at when deciding if a business plan was reasonable?

Courts consider several practical factors:

Was there a clear, sensible business plan?
Was the business already too far gone financially?
Did the potential benefits outweigh the payment amount?
Would a bankruptcy trustee have made the same decision to maximize recovery for all creditors?

Six Key Lessons from the Preference Case

This case teaches us important lessons about how creditors are treated when a business is heading toward bankruptcy. Let’s break down what the Court of Appeal for Ontario said in simple terms:

1. All Creditors Must Be Treated Equally

The court firmly reminded us that the foundation of bankruptcy law is treating all creditors fairly. Section 141 of the BIA states that “all unsecured creditors rank equally and share equally in the bankrupt’s assets.” This isn’t just a nice idea – it’s the law.

2. Payments Shortly Before Bankruptcy Can Be Reversed

When a business pays one creditor right before bankruptcy (within 3 months), that payment can be “voided,” – meaning the creditor has to give the money back. This happens when:

The business was already unable to pay all its debts
The payment gave that creditor better treatment than others

In this case, AmPac had to return the entire $400,000 payment.

3. Courts Assume Preferential Intent

If arrangements with creditors, including a payment, check the boxes above, the court starts with the assumption that the business intended to give that creditor special treatment. This is called a “rebuttable presumption,” which means it’s up to the business to prove otherwise.

4. Pressure from a Supplier Isn’t an Excuse

The court clarified an important point: just because a creditor was demanding payment doesn’t justify giving them special treatment. While the court will consider creditor pressure as part of the whole story, it can’t be the main excuse for the payment.

5. Business Continuation Plans Need to Be Realistic

The court established a clear standard: if a business claims they made a payment to stay afloat (not to prefer one creditor), they must show they had a reasonable plan. This plan must:

Be more than just wishful thinking
Shows real potential to benefit all creditors, not just one
Be something a bankruptcy trustee might reasonably do to help all creditors

6. Courts Look at Hard Facts, Not Just Good Intentions

When deciding if a business plan was reasonable, courts look at practical factors:

Was there a sensible, detailed business plan?
Was the business already beyond saving?
Did the potential benefits outweigh the payment amount?
Would the plan help satisfy all creditor claims?

The Hard Truth About Equality

The outcome of this case might seem harsh. AmPac provided goods, Specialty made a payment, and now AmPac has to give the money back. But bankruptcy law has a greater purpose – making sure one creditor doesn’t get special treatment while others get nothing.

In the end, the court ordered AmPac to return the entire $400,000. This reinforces an important principle: when a business is heading toward bankruptcy, fairness to all creditors matters more than the survival of one relationship.

For business owners, the message is clear: when you’re facing financial trouble, you can’t play favourites with creditors – even if it feels like the only way to keep your business alive. The law demands fairness, even when fairness is difficult.

As a licensed insolvency trustee serving the Greater Toronto Area, I encourage business owners to view financial difficulties not as failures but as challenges that can be addressed with proper guidance. By understanding the warning signs of company insolvency and seeking professional advice early, many businesses can find a path forward – whether through restructuring, strategic changes, or in some cases, an orderly wind-down that protects their future opportunities.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help entrepreneurs understand their options and find a path forward during financial challenges.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

Brandon Blog Post

CEBA LOANS & COMPANY INSOLVENCY: ESSENTIAL FACTS GTA ENTREPRENEURS NEED TO KNOW

Post author By Brandon Smith
Post date May 19, 2025

Company Insolvency Introduction

On a chilly night in early 2020, I remember getting a frantic email from a fellow entrepreneur—her café had just closed its doors indefinitely. The uncertainty in her voice mirrored what every small business owner across Canada felt: a silent panic about their limited company insolvency and that maybe, just maybe, their business wouldn’t make it to the other side. Then came the lifeline: the Canada Emergency Business Account (CEBA). But what seemed like a straightforward rescue turned out to be a maze of deadlines, fine print, ups and downs, and (frankly) some mind-boggling statistics. Here’s the backstage pass to what really happened, odd details and all.

In this Brandon’s Blog, I look at the CEBA and its statistics. CEBA was a monumental rescue for nearly 900,000 Canadian businesses. It ultimately became clear: while survival rates for CEBA recipients outperformed expectations, the true landscape was one of complexity, struggle, and —oddly enough — hopeful resilience.

Understanding Company Insolvency in the Post-Pandemic Era

As a licensed insolvency trustee serving businesses across the Greater Toronto Area, I’ve witnessed firsthand how the pandemic tested the financial resilience of local entrepreneurs. When COVID-19 hit in early 2020, business owners faced unprecedented challenges, with many teetering on the edge of company insolvency – a situation where a business can no longer meet its financial obligations.

What is Company Insolvency?

Company insolvency occurs when a business can’t pay its debts when they come due or when liabilities exceed assets. For GTA entrepreneurs, understanding the warning signs of company insolvency is crucial:

Consistently missing payment deadlines
Using personal funds to cover business expenses
Struggling to meet payroll obligations
Receiving collection notices from creditors
Declining sales without corresponding cost reductions

The CEBA Lifeline: A Double-Edged Sword

When the pandemic threatened thousands of GTA businesses with company insolvency, the CEBA emerged as a critical lifeline. Launched on March 27, 2020, CEBA offered up to $60,000 in interest-free loans with potential partial forgiveness.

CEBA by the Numbers:

Nearly 900,000 Canadian businesses received CEBA loans
Total funding reached approximately $49 billion
Construction companies received over $6.4 billion (13.1% of funds)
Client-facing industries had the highest uptake rates:
- Accommodation/food services: 83% uptake
- Arts/entertainment/recreation: 77.1% uptake

For many Toronto entrepreneurs who contacted my office, CEBA provided essential short-term relief from company insolvency. As one local restaurant owner told me,

“That loan was the only thing standing between our survival and shutting down permanently.”

The Repayment Reality and Growing Company Insolvency Concerns

While CEBA helped many businesses avoid immediate company insolvency, the repayment phase has proven challenging. The deadline extensions (from December 2022 to January 2024) highlight the ongoing financial strain many GTA businesses faced.

By January 2024, approximately 19% of CEBA loans ($9.2 billion nationally) remained unpaid. These unpaid loans were converted to 3-year, 5% interest loans without forgiveness options, creating new insolvency risks for already struggling businesses.

In my practice across the GTA, I’ve seen certain industries struggling more than others with repayment:

Transportation/warehousing: 30.7% of loans unpaid
Taxi services: 51.1% couldn’t repay
Accommodation/food services: 21.9% unpaid
Construction: 20.1% ($1.3B) outstanding

Company Insolvency: The Surprising Bankruptcy Trends

The data reveals a counterintuitive pattern that every GTA business owner should understand. When COVID first struck, business bankruptcies dropped from 400-450 quarterly filings in early 2020 to just 250 by Q3 2021.

This wasn’t because businesses were thriving – it was because government supports like CEBA were temporarily masking company insolvency issues.

By Q1 2024, we witnessed a dramatic surge in bankruptcy filings to over 1,200, nearly five times the pandemic lows. Two main factors drove this spike:

Expiring CEBA loan forgiveness deadlines
Rising interest rates have made refinancing difficult or impossible

What’s particularly telling is that about 70% of Q1 2024 bankruptcies involved businesses that had taken CEBA loans. Yet, looking at the bigger picture, only 0.7% of all CEBA borrowers went bankrupt compared to 1.3% of non-CEBA businesses.

Industry-Specific Company Insolvency Patterns in the GTA

For Toronto-area entrepreneurs, understanding which sectors face the highest company insolvency risk is crucial. The bankruptcy distribution wasn’t random:

Accommodation and food services: 20.3% of all CEBA bankruptcies
Retail trade: 13.7%
Construction: 11.8%
Transportation and warehousing: 7.6%

Between Q3 2023 and Q1 2024 alone, food service bankruptcies increased by an alarming 139.8%. This reflects the particular challenges restaurants and cafes in the GTA continue to face with reduced foot traffic in downtown areas and changing consumer habits.

Signs of Financial Distress That Your GTA Business May Be Heading Toward Company Insolvency

As a licensed insolvency trustee, I regularly help business owners recognize early warning signs of company insolvency:

Cash flow problems: Consistently struggling to pay bills on time
Increasing debt: Taking on new debt to pay existing obligations
Creditor pressure: Receiving demands or legal notices from suppliers
Declining sales: Persistent revenue drops without corresponding cost reductions
Personal guarantee concerns: Feeling anxious about personally guaranteed items.

Options for GTA Businesses Facing Company Insolvency

If your Toronto-area business is showing signs of financial distress, several options exist:

1. Informal Restructuring

Working directly with creditors to negotiate payment terms without formal legal proceedings.

2. Division I Proposal

A formal payment plan found in a legally binding agreement administered by a licensed insolvency trustee with creditors that allows your business the additional time needed to continue operating while paying a portion of the debts, with the balance being forgiven.

3. Corporate Bankruptcy

The formal bankruptcy process of liquidating company assets is used when restructuring isn’t viable. This is both a legal process and a financial one.

4. Strategic Wind-Down (Voluntary Liquidation) or Compulsory Liquidation

An orderly closure that minimizes losses and protects personal assets as best as possible.

Company Insolvency: The Future Outlook for GTA Businesses

Statistics Canada data shows 65.6% of businesses expect to fully repay their CEBA loans by the end of 2026. However, 14.5% anticipate falling short, potentially facing company insolvency. Nearly 20% remain uncertain about their financial future.

For GTA entrepreneurs, this uncertainty creates difficult decisions:

Repay CEBA or invest in necessary business improvements?
Upgrade equipment or prioritize debt reduction?
Hire needed staff or conserve cash for loan repayment?

Company Insolvency: Professional Guidance and Support

Importance of Professional Advisors

When facing company insolvency, many GTA entrepreneurs make the critical mistake of trying to solve complex financial problems alone. As someone who has guided hundreds of Toronto businesses through financial crises, I’ve seen how proper professional guidance can be the difference between business recovery and complete failure.

Professional advisors bring several key benefits when dealing with company insolvency:

Objective assessment: An outside expert can evaluate your situation without emotional attachment
Legal protection knowledge: Understanding which actions might create personal liability
Creditor negotiation skills: Experience in reaching favorable terms with creditors
Regulatory compliance: Ensuring all filings and procedures follow legal requirements

A recent study found that businesses seeking professional help within the first three months of financial distress were 65% more likely to survive than those waiting six months or longer. For GTA business owners, this early intervention can be particularly valuable in our competitive market.

Selecting a Licensed Insolvency Trustee

Not all financial advisors are equal when it comes to company insolvency matters. licensed insolvency practitioners are the only insolvency professionals authorized to file and manage insolvency proceedings in Canada. When selecting a Licensed Insolvency Trustee in the Greater Toronto Area, consider:

Experience with your industry: Find someone who understands the specific challenges of your business sector
Location and accessibility: Choose a Licensed Insolvency Trustee familiar with GTA business conditions and easily accessible for meetings
Communication style: Select someone who explains complex insolvency concepts in straightforward terms
Fee structure: Understand how the Licensed Insolvency Trustee charges for services and what’s included
Client testimonials: Look for reviews from other GTA business owners in similar situations

Remember that your initial consultation with a Licensed Insolvency Trustee is typically free and confidential. This meeting allows you to discuss your company insolvency concerns without obligation while getting expert insight into your options.

Leveraging Expertise for Strategic Planning

Working with a Licensed Insolvency Trustee offers more than just technical assistance with company insolvency procedures. The right advisor becomes a strategic partner in dealing with our company’s financial situation and planning your business’s future.

In my practice serving GTA entrepreneurs, I work with clients to:

Identify core business strengths that can form the foundation of a recovery plan
Analyze cash flow patterns to find opportunities for immediate improvement
Develop realistic financial projections based on current market conditions in Toronto
Create contingency plans for various economic scenarios
Establish monitoring systems to provide early warning of future insolvency risks

One Toronto insolvent business I worked with was able to transform a seemingly hopeless company insolvency situation into a streamlined, profitable business by implementing strategic changes identified during our planning sessions. The key was having expert guidance to distinguish between essential business components and areas that could be restructured or eliminated.

Your Licensed Insolvency Trustee can also coordinate with your other professional advisors—accountants, lawyers, business coaches—to ensure everyone is working cohesively toward your business goals while addressing immediate company insolvency concerns.

Taking Action: Steps for GTA Business Owners

If your business is struggling with potential company insolvency, consider these steps:

Seek professional advice early: Consult a licensed insolvency trustee for a free assessment
Review your financial statements: Understand your true financial position
Create a realistic cash flow projection: Map your business’s financial future
Consider all available options: Restructuring may be possible before bankruptcy becomes necessary
Protect personal assets: Understand your liability regarding business debts

Company Insolvency FAQ

1. What is company insolvency, and what are the signs to look for?

Company insolvency occurs when a business is unable to pay its debts when they are due, or when its liabilities exceed its assets. For entrepreneurs, crucial warning signs include consistently missing payment deadlines, using personal funds for business expenses, struggling to meet payroll, receiving collection notices, and experiencing declining sales without cost reductions.

2. How did government support programs like CEBA impact business bankruptcy rates?

Interestingly, business bankruptcies initially dropped during the height of the pandemic. This was not due to businesses thriving, but rather because government support programmes like CEBA temporarily masked underlying insolvency issues. Once CEBA repayment deadlines passed and interest rates rose, there was a dramatic surge in bankruptcy filings, reaching levels nearly five times the pandemic lows by Q1 2024.

3. Which industries have been most affected by company insolvency after the CEBA deadline?

Data indicates that certain sectors have struggled more with CEBA repayment and subsequent insolvency. Industries with high unpaid CEBA loan rates include transportation/warehousing (30.7% unpaid), taxi services (51.1% unpaid), accommodation/food services (21.9% unpaid), and construction (20.1% unpaid). The accommodation and food services sector, in particular, saw a significant increase in bankruptcies between Q3 2023 and Q1 2024.

4. What options are available for businesses facing company insolvency?

Businesses experiencing financial distress have several options, depending on their situation. These include informal restructuring (negotiating directly with creditors), filing a Division I Proposal (a formal debt repayment plan administered by a licensed insolvency trustee), corporate bankruptcy (liquidation of assets), or a strategic wind-down/voluntary liquidation.

5. Why is seeking professional help early crucial when dealing with company insolvency?

Seeking professional guidance from a licensed insolvency trustee early in the process significantly increases a business’s chances of survival. Licensed insolvency trustees can provide an objective assessment, knowledge of legal protections, experience in negotiating with creditors, and ensure regulatory compliance. Businesses that seek professional help within the first three months of distress are considerably more likely to recover.

6. What is the future outlook for businesses regarding CEBA repayment and insolvency?

While a majority of businesses anticipate fully repaying their CEBA loans by the end of 2026, a significant percentage still expect to fall short or remain uncertain about their financial future. This uncertainty forces businesses to make difficult decisions about prioritizing debt repayment versus investment and hiring. For many, company insolvency remains a real possibility, highlighting the ongoing economic challenges in the post-pandemic era.

Company Insolvency Conclusion: Learning from the CEBA Experience

The CEBA program provided crucial support to nearly 900,000 Canadian businesses during an unprecedented crisis. For many GTA entrepreneurs, it meant survival through the darkest days of the pandemic.

However, as repayment deadlines passed and economic challenges continue, we’re witnessing a complex landscape where company insolvency remains a very real threat for many local businesses.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help entrepreneurs understand their options and find a path forward during financial challenges.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

Tags bankruptcy process, canadian businesses, cash flow, ceba, Company assets, company insolvency, compulsory liquidation, financial distress, formal payment plan, insolvency proceedings, insolvency professional, insolvent business, insolvent businesses, Ira Smith Trustee, legal process, licensed insolvency trustee, restructuring process, Statistics Canada, voluntary liquidation

Brandon Blog Post

THE LOOMING TRADE WAR: OUR CANADIAN ENTREPRENEURS’ ACTION PLAN DURING INTENSE ECONOMIC UNCERTAINTY

Post author By Brandon Smith
Post date May 5, 2025

Trade War Introduction

The storm clouds of a global trade war are gathering on the horizon. As a licensed insolvency trustee working with Canadian entrepreneurs in the Greater Toronto Area, I’ve witnessed firsthand the anxiety that comes with economic uncertainty. The recent Bank of Canada report released on April 16, 2025, has raised serious concerns about how proposed United States tariffs and overall trade tensions could trigger a worldwide trade war with significant consequences for Canadian businesses.

A few weeks ago I wrote a blog titled TARIFF-INDUCED BANKRUPTCY: WHAT CANADIANS NEED TO UNDERSTAND. If you’re a Canadian entrepreneur wondering how to steer your company through these choppy waters, you’re not alone. This Brandon’s Blog breaks down what’s happening, what might happen next, and most importantly, how you can prepare your business for the challenges ahead.

Understanding the Trade War Threat

What the Bank of Canada is Saying

The Bank of Canada’s latest Monetary Policy Report maintained the overnight interest rate at 2.75% following seven consecutive rate cuts. But the real headline is their warning about a potential economic downturn due to global trade war tensions. In fact, the word “uncertainty” appeared 49 times in their report—a clear signal that even our financial experts are concerned.

The Bank outlined two possible scenarios that could play out through 2027 due to American tariffs on international trade:

Scenario 1: Moderate Percent Tariffs and Slower Growth

Moderate US-China Trade War resulting in 10% tariffs on Chinese imports
25% tariffs on imported steel and aluminum
Retaliatory tariffs from China averaging 1% on United States imports
Canada imposes 25% reciprocal tariffs on $29.8 billion of United States goods
Canadian dollar valued at USD 0.70

Under this scenario, the Canadian economy GDP growth would slightly increase from 1.5% in 2024 to 1.6% in 2025, before dipping to 1.4% in 2026 and recovering to 1.7% in 2027. This represents a slowdown in economic growth but avoids recession.

Scenario 2: Extreme Percent Tariffs Leading to Recession

12% tariffs on imports of Canadian and Mexican goods (excluding motor vehicles and parts)
25% tariffs on non-US content of imported vehicles and parts
25% tariffs on all goods from other countries, including Chinese imports – a less extreme US-China Trade War with less punitive tariffs than is currently the case
Canada imposes an additional 12% reciprocal tariff on $115 billion of United States goods
Canadian dollar dropping to USD 0.67

This second scenario is much more troubling. The Bank projects the Canadian economy GDP growth would decline from 1.5% in 2024 to just 0.8% in 2025, before contracting to -0.2% in 2026. This would mark a recession from Q2 2025 to Q1 2026, with inflation potentially peaking at 2.7% in 2026.

Direct Trade War Impacts on Canadian Businesses

As a trade war intensifies, Canadian businesses would face several immediate challenges:

Higher Costs and Supply Chain Disruptions

With tariffs as high as 25% on many imported goods, your business costs could rise dramatically overnight. Products you import from the United States would become more expensive, forcing tough decisions about whether to absorb these costs or pass them on as higher prices for consumers.

Supply chains built over decades could unravel quickly as goods get stuck at borders, tariff calculations cause delays, and shipping routes are reorganized. This disruption means more than just higher costs—it could mean unfulfilled orders and disappointed customers.

Shrinking Markets and Cash Flow Pressure

Perhaps more concerning is what happens to your export opportunities. If you sell to United States customers, you might find your products priced out of the market as new tariffs make them too expensive for American buyers.

This double squeeze—higher costs for inputs and reduced sales opportunities—creates serious cash flow challenges. Many businesses that look profitable on paper could quickly face liquidity problems as cash gets tied up in more expensive inventory while sales slow down.

Financial Planning During a Trade War

Know Your Exposure

The first step in preparing for a potential trade war is understanding exactly how exposed your business is:

What percentage of your inputs come from the United States or other countries that might face tariffs?
How much of your revenue comes from exports that could be affected?
Which specific products in your inventory would face the highest import tariffs?

This analysis will help you prioritize your response strategy.

Build Financial Buffers Now

With the Bank of Canada warning of potential recession, now is the time to strengthen your financial position:

Increase your cash reserves where possible
Reduce non-essential spending
Review and potentially renegotiate payment terms with suppliers and customers
Consider securing credit lines before economic conditions worsen

Remember, in economic downturns, cash is king. Businesses with healthy cash reserves can often find opportunities while their competitors struggle.

Stress-Test Your Business

Run financial projections based on the imposition of tariffs under both Bank of Canada scenarios:

How would your business perform if costs increased by 10-25%?
What if sales decreased by 10-20% simultaneously?
How many months could your business survive under these conditions?

This exercise might be uncomfortable, but it provides valuable insights into your vulnerabilities.

Practical Trade War Strategies for Canadian Entrepreneurs

Diversify Your Supply Chain

Relying exclusively on United States suppliers is risky in a trade war environment. Consider:

Identifying alternative suppliers in Canada or countries less likely to be affected by tariffs
Stockpiling essential materials if you have the storage capacity and cash flow
Exploring whether you can change production methods to use different inputs, such as more domestic products

Find New Markets

If United States markets become less accessible due to tariffs, look elsewhere:

The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) offers preferential access to European markets
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) provides opportunities in the Asia-Pacific countries
Don’t overlook domestic opportunities—other Canadian businesses may be looking to replace United States suppliers

Adjust Your Pricing Strategy

Review your pricing strategy to maintain profitability:

Can you pass some cost increases to customers?
Should you adjust your product mix to emphasize items with better margins?
Are there premium segments less sensitive to price increases?

Review Contracts and Force Majeure Clauses

Examine your existing contracts with United States partners:

Do they contain force majeure clauses that might be triggered by significant tariffs?
Can contracts be renegotiated to share the burden of new tariffs?
Should you consider shorter contract terms to maintain flexibility?

Canadian Government Resources and Support

Available Canadian Programs

The Canadian government offers several resources to help businesses affected by trade disputes:

The Trade Commissioner Service provides market intelligence and connection services
Export Development Canada offers financing and insurance solutions
The Business Development Bank of Canada provides specialized loans for businesses facing temporary challenges

Provincial Initiatives

Ontario has specific programs to help businesses in the province:

The Ontario Together Fund supports businesses looking to retool their operations
The Ontario Investment Office can help identify new market opportunities
Regional innovation centers offer guidance on adapting business models

Debt Management in Uncertain Times

Warning Signs of Financial Distress

As a licensed insolvency trustee, I’ve seen how trade wars and economic downturns can push businesses into financial difficulty. Watch for these warning signs:

Using credit to pay for regular expenses
Missing tax payments
Extending payables beyond 90 days
Receiving collection calls from suppliers
Difficulty making loan payments

When to Seek Professional Help

If you notice these warning signs, don’t wait until a crisis hits. Consider:

Consulting with a licensed insolvency trustee to understand your options
Exploring debt restructuring possibilities
Investigating formal arrangements with creditors

Early intervention often provides more options and better outcomes. Many entrepreneurs wait too long before seeking help, limiting their available solutions.

Success Stories: Adaptation During Previous Trade Disputes

Learning from the Past

Canada has weathered trade disputes before. During the softwood lumber dispute and the 2018 steel and aluminum tariffs, many Canadian businesses successfully adapted:

A Toronto-based furniture manufacturer shifted to domestic wood suppliers and developed new finishes that used different imported components not subject to tariffs
An Ontario tech company that previously focused on United States clients pivoted to develop European partnerships, ultimately discovering a more profitable market
A Hamilton steel fabricator invested in more efficient equipment that allowed it to remain competitive despite higher input costs

The common thread? These businesses didn’t just weather the storm—they used it as an opportunity to become more resilient and diverse.

Conclusion: Preparing for an Uncertain Future

The Bank of Canada’s warning about a potential trade war and recession is concerning, but it also gives Canadian entrepreneurs time to prepare. By understanding your exposure, building financial buffers, diversifying your markets and suppliers, and knowing when to seek help, you can position your business to survive and potentially thrive during economic turbulence.

As Tiff Macklem, the Governor of the Bank of Canada, emphasized,

“Flexibility and adaptability are vital in this unpredictable economic climate.”

These words have never been more relevant for Canadian businesses.

Remember that preparation is key. The businesses that start planning now for both moderate and severe trade war scenarios will be best positioned to navigate whatever economic challenges emerge in the coming months.

Need Help Navigating These Uncertain Trade War Times?

I hope you’ve found this trade war Brandon’s Blog helpful. If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help entrepreneurs understand their options and find a path forward during financial challenges.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

Tags aluminum tariffs, American tariffs, Canadian economy, Chinese imports, economic growth, import tariffs, imposition of tariffs, International trade, Ira Smith Trustee, prices for consumers, punitive tariffs, reciprocal tariffs, retaliatory tariffs, tariffs on imports, trade agreement, trade tensions, trade war, Trump, US-China Trade War

Brandon Blog Post

FORGIVING STUDENT LOANS THROUGH CANADIAN BANKRUPTCY: THE SUPREME COURT’S GAME-CHANGING PIEKUT DECISION

Post author By Brandon Smith
Post date April 28, 2025

forgiving student loans

Forgiving Student Loans: Introduction To The Piekut Case

Are you struggling with student loan debt in Canada? Wondering if there’s any way to get those loans forgiven through bankruptcy? You’re not alone. Many Canadians find themselves burdened by student debt long after graduation, and the path to financial freedom can seem unclear.

A recent Supreme Court of Canada (SCC) decision has changed the landscape of forgiving student loans through bankruptcy. This ruling, known as the Piekut case, affects anyone with government student loans who might be considering bankruptcy as a solution.

As a Licensed Insolvency Trustee helping Canadian consumers and entrepreneurs in the Greater Toronto Area navigate their financial challenges daily, I want to break down what this important court decision means for you in clear, simple terms.

The Basics: Student Loans and Bankruptcy in Canada

What Are Student Loans?

Before diving into bankruptcy details, let’s clarify what we mean by student loans in Canada:

Student loans are financial assistance provided by the federal and provincial/territorial governments to help Canadians afford post-secondary education. These federal loans and provincial loans typically cover:

Tuition fees
Textbooks and supplies
Living expenses during your studies

Most students don’t have to make payments while studying full-time, and interest usually doesn’t start accumulating until after you finish school. This grace period is meant to give you time to find a job before repayment begins.

How Does Bankruptcy Work in Canada?

Bankruptcy is a legal process designed to help people who cannot pay their debts. When you file for bankruptcy:

You surrender certain assets to a Licensed Insolvency Trustee
In exchange, most of your unsecured debts are legally discharged
You get a fresh financial start

However, not all debts are treated equally in bankruptcy. The Bankruptcy and Insolvency Act (BIA) specifies certain types of debt that cannot be easily discharged, and government student loans fall into this special category.

Forgiving student loans

The Evolution of Forgiving Student Loans in Bankruptcy

The rules around forgiving student loans through bankruptcy have changed several times over the years:

Before 1997: The Early Days

In this period, student loans were generally treated like other unsecured debts in bankruptcy. If you declared bankruptcy, your student loans could be discharged along with your other debts.

1997: The First Restriction

The government introduced a rule that student loans couldn’t be automatically discharged if you went bankrupt within two years of finishing school. This was the beginning of special treatment for student loans in bankruptcy law.

1998: Tightening the Rules

Just a year later, the waiting period was extended dramatically, from two years to ten years. This meant you had to wait a full decade after finishing school before your student loans could be discharged through bankruptcy.

2005: Finding Middle Ground

In 2005, the government eased the restrictions somewhat:

The non-discharge period was reduced from ten years to seven years
A hardship provision was added, allowing people to apply for relief after five years

These changes attempted to balance the government’s desire to protect taxpayer-funded loan programs with the need to give struggling borrowers a path to financial recovery.

The Current Rule: The Seven-Year Wait

Today, the impact on forgiving student loans under section 178(1)(g)(ii) of the BIA is:

Your government student loans will not be automatically discharged through bankruptcy if you file within seven years after you ceased being a full-time or part-time student.

Simple enough, right? Not quite. The challenge has been determining exactly when that seven-year clock starts ticking, especially for people who return to school multiple times.

Forgiving student loans

The Big Question: When Does Someone “Stop Being a Student”?

This is where things get complicated, and where the Piekut case becomes so important.

Imagine this scenario: You attend university for a few years and take out student loans. Then you work for a while before deciding to go back to school for additional education (maybe with or without taking out more loans). Later, you find yourself in financial trouble and consider bankruptcy.

When does the seven-year period begin in this situation? After your first period of study ended? Or only after your final period as a student?

Two Competing Interpretations

Before the SCC’s decision, courts across Canada were split between two different approaches:

The “Single-Date” Approach

Courts in Quebec and British Columbia followed the “single-date” approach, which says:

There is only one date when you “ceased to be a student” for bankruptcy purposes
That date is the very last time you were a student before filing for bankruptcy
Even if you had long gaps between periods of study, the seven-year clock only starts after your final period of education

The “Multiple-Date” Approach

Courts in Ontario and Newfoundland and Labrador used the “multiple-date” approach, which argues:

You can have several dates when you “ceased to be a student”
Each date corresponds to the end of a different program or period of study
The seven-year clock for loans from earlier periods can start running even if you return to school later

These different interpretations created confusion and inconsistency across Canada. The SCC needed to decide which approach was correct.

Meet Ms. Piekut: The Case That Made It to the SCC

Izabela Piekut’s situation perfectly illustrates why this legal question matters. Here’s her educational timeline:

1987-1994: Post-secondary education (with federal student loans)
1994-1995: More post-secondary education (with federal student loans)
2002-2003: Further post-secondary education (with federal student loans)
2006-2009: Another program (self-funded, no new loans)
October 2013: Filed a consumer proposal listing her student loan debt

Ms. Piekut argued that she “ceased to be a student” in 2003, the last time she received government student loans. Since she filed her consumer proposal in 2013, more than seven years had passed since that date, and she believed her loans should be eligible for discharge.

However, the government argued that she remained a student until 2009, when she completed her final program. Since only four years had passed between 2009 and her 2013 consumer proposal, her student loans would not be eligible for discharge.

The courts in British Columbia sided with the “single-date” approach, but because courts elsewhere in Canada were using different interpretations of the same law, Ms. Piekut took her case all the way to the Supreme Court of Canada.

Forgiving student loans

Forgiving Student Loans: What the SCC Considered

The SCC didn’t just look at Ms. Piekut’s specific situation. They examined several important factors to determine the correct interpretation of the law:

The Wording of the Law

The judges carefully analyzed section 178(1)(g)(ii) of the BIA, focusing on key phrases like “the date” and “ceased.” They also compared the English and French versions of the law to look for additional clarity.

The Context of the Law

They considered how this section fits with other parts of the BIA, particularly section 178(1.1), which allows for a hardship application after five years.

The Purpose Behind the Law

The Court examined why Parliament created these special rules for student loans in the first place:

To reduce government losses from student loan defaults
To ensure student loan programs remain sustainable for future students
To give graduates a reasonable time to use their education to secure employment and repay their loans
To discourage people from using bankruptcy solely to avoid repaying their student loans

The Practicalities of Student Loan Programs

The Court also considered how federal and provincial student loan programs operate, including their definitions of full-time and part-time student status.

The SCC’s Decision On Forgiving Student Loans: The “Single-Date” Approach Wins

In its decision released on April 17, 2025, the majority of the SCC judges sided with the “single-date” approach. They ruled that for bankruptcy law, there is only one date when a person “ceased to be a full- or part-time student,” and that is the last date they were a student before filing for bankruptcy.

For Ms. Piekut, this meant that because she was a student until 2009 and filed her consumer proposal in 2013 (only four years later), her student loans were not eligible for automatic discharge.

Forgiving student loans

Why the Court Chose the Single-Date Approach In The SCC Piekut Decision

The SCC Piekut decision listed several compelling reasons for their decision:

The Language of the Law

The Court pointed out that section 178(1)(g)(ii) uses singular terms like “the date” and “ceased,” suggesting a single, final point in time. The word “ceased” implies a permanent end to something—in this case, student status.

If someone returns to school, their status as a student hasn’t truly “ceased” in a final way until their very last period of studies ends.

Consistency with Other Parts of the Law

The Court also examined section 178(1.1), the hardship provision that allows for potential relief after five years. This section also refers to when a person “ceases to be a full- or part-time student.”

For the law to be consistent, both sections should refer to the same date—the last date of study. The French version of section 178(1.1) was particularly convincing, as it uses language that indicates a final point of ceasing to be a student.

Supporting the Purpose of the Law

The Court believed the single-date approach better fulfilled Parliament’s intentions in creating these rules. By starting the seven years after a person’s final time as a student, it:

Gives graduates a continuous period to benefit from all their education
Provides time to secure employment and establish financial stability
Helps prevent people from declaring bankruptcy shortly after finishing their education, only to benefit from it later

Avoiding Unfair Situations

The Court argued that the multiple-date approach could lead to illogical results. For example, someone could have a short break between programs, and the seven-year clock for their first loans could start running even though they quickly return to school and continue enjoying student benefits.

This could potentially allow them to discharge their earlier loans even if they haven’t had a proper opportunity to repay them due to being a student for most of the time.

The Dissenting Opinion On Forgiving Student Loans: What the Minority Thought

While the majority of SCC judges agreed on the single-date approach, three judges had a different view. They argued that the seven-year period should work in a forward-looking way from each time someone stopped being a student.

These dissenting judges believed that once seven years had passed since someone stopped being a student for a particular period of study, the loans related to that period should be eligible for discharge, even if the person returned to school later.

They felt the single-date approach could lead to unfair results in some cases, where someone who has been out of school for many years could have their loans remain non-dischargeable simply because they decided to further their education.

However, despite this disagreement, the majority’s “single-date” decision is now the law across Canada.

Forgiving student loans

What This Means for Canadians Looking For Forgiving Student Loans

The SCC’s decision in the Piekut case has established a clear standard for all of Canada. Here’s what it means for people with government student loans who are considering bankruptcy or a consumer proposal:

The Seven-Year Clock Starts After Your Last Studies

The seven-year period during which your government student loans cannot be discharged through bankruptcy begins only after you have finished being a student. This applies to both full-time and part-time studies under federal or provincial student loan program rules.

Returning to School Resets the Clock

If you go back to school—even if you don’t take out new student loans—the seven-year countdown will restart after you finish that latest period of study.

No Separate Timelines for Different Loans

You cannot argue that the seven years should be calculated separately for loans taken out during different periods of study. What matters is when you last stopped being a student, not when you took out each loan.

Discharging Student Loans Within Seven Years Is Difficult

Unless you can qualify for the five-year hardship provision (which I’ll discuss next), it will be very challenging to get your government student loans discharged through bankruptcy if less than seven years have passed since you were last a student.

Is There Any Hope for Earlier Relief? The Five-Year Hardship Provision For Forgiving Student Loans

Even if it hasn’t been seven years since you were last a student, there is still a possibility of getting relief from your student loan debt through bankruptcy.

Section 178(1.1) of the BIA allows you to apply to the court to have your student loans discharged if at least five years have passed since you stopped being a student.

However, this isn’t automatic. To get this relief, you need to convince the court of two things:

You have acted in good faith in dealing with your student loan debt (meaning you’ve made reasonable efforts to repay)
You are experiencing significant financial hardship that will continue, making it impossible for you to repay the debt

This is known as a “hardship application,” and the court has the discretion to decide whether to grant it based on your specific circumstances.

Some factors courts typically consider when evaluating hardship applications include:

Your income and employment situation
Your living expenses and family responsibilities
Any medical issues or disabilities affecting your ability to work
Your efforts to find employment in your field of study
Previous attempts to make loan payments or negotiate repayment plans
Forgiving student loans

Common Questions About Forgiving Student Loans Through Bankruptcy

Do Private Student Loans Follow the Same Rules?

No, the seven-year rule specifically applies to government student loans (federal and provincial). Private loans from banks or other lenders are generally treated like other unsecured debts in bankruptcy and can be discharged regardless of when you finished school.

What If I’ve Consolidated My Student Loans?

Consolidating your eligible student loans doesn’t change their status under bankruptcy law. Even if you’ve combined multiple loans into one, the seven-year rule still applies based on when you last ceased to be a student.

Does Taking a Single Course Reset the Seven-Year Clock?

It depends on whether that course qualifies you as a “full-time or part-time student” under the rules of your student loan program. Generally, taking a single course wouldn’t reset the clock unless it meets the program’s definition of part-time studies.

What About Student Lines of Credit from Banks?

Student lines of credit from private financial institutions are different from government student loans. They’re typically direct loans given to eligible borrowers treated like regular unsecured debt in bankruptcy, and don’t have the same seven-year restriction.

Do I Need to Prove My Student Loan Status in Bankruptcy?

Another question addressed in the Piekut case was whether the government needs a separate court order to prove its student loan claim in bankruptcy.

The SCC clarified that the government doesn’t need to get a special court order. Student loan debts are established by law and can typically be proven with records. The government just needs to file a standard proof of claim in the bankruptcy process.

Getting Help with Your Student Loan Debt

Navigating bankruptcy and the rules around student loan debt can be overwhelming. If you’re struggling with student loans and considering bankruptcy or a consumer proposal, professional advice is essential.

As a Licensed Insolvency Trustee, I can help you:

Understand how the Piekut decision affects your specific situation
Determine when your seven-year period begins based on your educational history
Consider alternatives to bankruptcy that might better suit your situation
Forgiving student loans

Beyond Bankruptcy: Other Options for Managing Student Loan Debt

While this article focuses on forgiving student loans through bankruptcy, it’s worth mentioning that there are other student loan forgiveness programs available to help Canadians manage their student loan debt:

Repayment Assistance Plan (RAP)

The federal and most provincial governments offer Repayment Assistance Plans that can:

Reduce your monthly student loan payments
Cover the interest portion of your loan payment
In some cases, contribute to the principal as well

RAP is available to borrowers who are having difficulty making their loan payments due to financial hardship.

Revision of Terms

You may be able to negotiate changes to your repayment terms, such as:

Extending your repayment period
Making interest-only payments for a period
Adjusting your payment schedule

Severe Permanent Disability Benefit

If you have a severe permanent disability that prevents you from working and repaying your loans, you may qualify for loan forgiveness under this program.

Some provinces offer their loan forgiveness programs for graduates who work in certain fields or in underserved areas. These typically apply to provincial portions of student loans.

Conclusion: Understanding Forgiving Student Loans After the Piekut Decision

The SCC’s decision in Piekut v. Canada (National Revenue) has provided much-needed clarity on how student loans are treated in bankruptcy. The “single-date” approach means the seven-year waiting period starts only after you complete your final period of studies.

While forgiving student loans through bankruptcy within seven years of finishing school remains challenging, it becomes possible after this period or through a successful hardship application after five years.

Understanding these rules is crucial for anyone struggling with student loan debt in Canada and considering debt relief options. The path to financial freedom may seem long, but knowing your options is the first step toward taking control of your financial future.

Remember, every financial situation is unique. A Licensed Insolvency Trustee can help you understand how these rules apply to your specific circumstances and guide you toward the best solution for your needs.

Don’t let student loan debt hold you back from building the future you deserve. With the right information and support, you can find a path forward—whether through bankruptcy after the seven years, a successful hardship application, or one of the many government assistance programs designed to help Canadians manage their student loan debt.

I hope you’ve found this forgiving student loans Brandon’s Blog helpful. If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

Forgiving student loans

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