Tag: small business

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SMALL BUSINESS IN CANADA: MUST A STAGGERING 200,000 CANADIAN SMALL BUSINESSES DECLARE BANKRUPTCY DUE TO THE PANDEMIC?

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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

small business in canada
small business in canada

Small business in Canada introduction

The Canadian Federation of Independent Business (CFIB) is the country’s champ of small business in Canada. CFIB is Canada’s biggest non-profit organization devoted to producing and sustaining an atmosphere where your small business in Canada can succeed.

CFIB promotes small business in Canada issues with political leaders as well as decision-makers. As a non-partisan company, it influences public policy based upon its members’ views. It tries to ensure that small business owners have an opportunity to impact the regulations and policies that impact Canadian business.

A member survey was performed by CFIB and the results were announced on Thursday, January 21, 2021. The results suggest that greater than 200,000 organizations could shut permanently because of and during the pandemic.

The federation states that it could throw greater than 2.4 million people out of work. The study suggests 1 in 6, or about 181,000 small companies, are currently seriously considering closing down. That’s up from 1 in seven or around 158,000 last summer.

The CFIB is contacting provincial and federal governments to try to help small businesses by presenting secure pathways to re-open and end lockdowns that may kill off these businesses.

The question I wish to explore with you today is if a small business in Canada needs to shut down, does it have to become one of the statistics of Canadian business bankruptcies? Must it file for corporate bankruptcy? For this small business in Canada Brandon Blog, I will assume that the small business is a corporation.

Small business in Canada: When is a corporation bankrupt, or insolvent?

As I have discussed with you in previous blogs, a company is insolvent under the BIA if:

  • it is not able to satisfy its debts as they generally come to be due; or
  • it has ceased paying current debts in the normal course of business as they end up being due; or
  • the company’s property is not enough, at a fair valuation, to permit settlement of all debts (significance that even if all the property was to be sold, the proceeds would not provide sufficient cash to pay all financial obligations which are owed, or will certainly soon end up being due).

A company is bankrupt under the Bankruptcy and Insolvency Act (Canada) (BIA) if it has made an assignment in bankruptcy, or if a bankruptcy order has actually been made against it. Bankruptcy is a legal process to eliminate debts if the small business in Canada is unable to pay them.

To be bankrupt, in the case of an assignment, the company, and in the case of a court order, the applicant creditor would have engaged the services of a licensed insolvency trustee (formerly called a bankruptcy trustee or a trustee in bankruptcy). Licensed insolvency trustees are the only professionals allowed to administer bankruptcies in Canada and are licensed and supervised by the Office of the Superintendent of Bankruptcy (OSB).

Every corporate bankruptcy is what is called an “ordinary administration“. Unlike in personal bankruptcy, there is no streamlined method for corporate bankruptcy. Remember this point as it serves as the basis for answering the question “Must a small business in Canada declare bankruptcy in order to close down due to the pandemic“?

Small business in Canada: Is small business bankruptcy the right choice?

One of the most difficult decisions that an entrepreneur owner of a small business in Canada ever needs to make is whether or not to put his/her business into bankruptcy. Obviously, every entrepreneur goes into business hoping for success, so thinking about bankruptcy isn’t just an economic decision; it is a psychological emotional one too. It’s very crucial to understand the truths regarding local business bankruptcy and also the various other options that may be available to you before you make that decision. This will aid you to avoid making a rash choice that could be the wrong one.

The reality is that, for many companies, there are choices besides small business in Canada bankruptcy. One possible choice is a proposal to creditors. In a proposal, you make a deal to your unsecured creditors to pay off a percentage of what is owed to them and/or stretch out (commonly lower) monthly payments over a longer amount of time. This ensures that creditors receive either some or all of what is owed to them in a way the company can afford. This enables small business in Canada to avoid bankruptcy and remain in operation.

The whole concept of a proposal is that you have a corporate entity that is insolvent, but, the underlying business is viable. If you can cut away the layers of debt, the business could continue to operate and employ people. You may even need to transition the business assets to a new corporation. All of this is possible under a Division I Proposal under the BIA. A proposal under the BIA is the same as the term you hear in the news all the time – bankruptcy protection. The company ultimately comes up with a plan of reorganization to tell its unsecured creditors what the company can do for them because it does not have the necessary money to pay them 100%.

If the business is not that complex and there are only a few creditors, possibly an informal proposal would work. The entrepreneur would discuss his company’s problems with each creditor and make an offer to them that is both appropriate and something the company can pay. If successful, the company can avoid formal restructuring proceedings. If there are too many creditors to do it on an informal basis, or if the restructuring is too complex, the small business can restructure under the BIA.

A proposal can be an excellent option for a small business that has actually encountered recent economic issues while having had success in the past. It can also be useful for a small company that was profitable but is now having a hard time due to the fact that past issues are weighing it down. A proposal is one of the alternatives to bankruptcy that I implement to save a company by allowing it to develop its plan of reorganization to emerge healthy to stay in business and to save jobs.

However, for some organizations, filing for small company bankruptcy is the choice that makes the most sense. A Trustee can help you recognize the alternatives available to ensure that you can decide if a bankruptcy filing is a proper alternative for your small business.

small business in canada
small business in canada

Small business in Canada: Is just closing the door an alternative?

Over the years we have consulted with many entrepreneurs about their small businesses in Toronto or other small business Ontario locations. Many times we end up advising them that it does not make sense to spend the money on any of the various types of bankruptcy proceedings. The size of the company and the nature of its assets makes either a proposal in bankruptcy or any bankruptcy process unnecessary. None of the forms of bankruptcy make sense. Let me explain.

Most small business opportunities in Canada started by entrepreneurs are funded using a variety of methods including:

  • investment by the owners;
  • small business start up grants Canada; and
  • small business loans.

More recently, the small business loan covid 19 Canada ($40000 Canada Emergency Business Account (CEBA) loan which has now been increased to $60,000) has also been used. The combination of owners taking stock in exchange for cash, loaning money to the small business and having a small business bank loan, perhaps even the official government-guaranteed Canada small business loan is pretty standard.

The bank will take security over all of the assets of the small business in Canada. By the time the business needs to shut down, there are not many assets left. Whatever assets there are, they are all fully secured by the bank. If the business is no longer viable, then although it is insolvent, it cannot be restructured as the business itself does not work anymore. If the assets are all fully encumbered, then there is no restructuring that can take place.

So a Division I Proposal under the BIA is not possible. Bankruptcy is a remedy for the unsecured creditors. If there are not many assets left, and what is left is fully secured by the bank, then the bank will suffer a shortfall and there are no assets available for the Trustee to use to make a distribution to the unsecured creditors. So why have any type of bankruptcy or any bankruptcy proceeding? It does not make sense to spend that money.

In this situation, it just makes sense to tell the bank that the business is shutting down, turn the key in the lock to the front door and give the key to the bank.

Small business in Canada: So what happens if I just close the door and lock it?

I call this the self-help remedy. There are too many problems with the business that it is not viable anymore. Perhaps the COVID-19 lockdown is just too tough to recover from and the small business cannot survive. Perhaps the assets are not worth much – think restaurant equipment where the cost of the leasehold improvements may be as much as the cost of the equipment. Because of this, the only choice is to walk away.

As a director of the company, you have a responsibility to make sure that all final government returns are completed and filed. If the company’s books and records are stored on-site. Perhaps the accounting information is stored on a computer hard drive. The directors should make sure that the books and records, be they electronic or physical, are safeguarded by taking them off the business premises.

You may need them not only to prepare final returns but also in case Canada Revenue Agency or any other regulatory authority has any questions or wishes to perform an audit. The directors will also want to make sure that all final employee records are completed and distributed to the former employees.

Next comes the bank. In Canada, the bank loan would have been either fully or partially guaranteed by the entrepreneur. The entrepreneur may have also personally guaranteed the premises lease of the business. The entrepreneur may also have personal liability for director obligations such as unremitted source deductions, unpaid HST and outstanding employee wages and vacation pay.

If the individual does not have sufficient personal assets or other resources to make good on their personal guarantee, then rather than focussing on bankruptcy for the business notwithstanding all the business debts, we need to focus on the person’s situation. Perhaps they will need to look at the various bankruptcy options, be it a consumer proposal, Division I Proposal or as a last resort, bankruptcy.

It will be much more productive for the entrepreneur to retain me to help them with their personal financial problems arising out of the closure of the small business in Canada rather than on the business itself that has little in the way of assets and no viable business left to salvage.

Must 200,000 Canadian small businesses declare bankruptcy due to the pandemic?

So given the above, the answer to the question is no. If the small business in Canada is viable, then perhaps it can be restructured to avoid bankruptcy, maintain operations and save jobs. If it is not viable, then, bankruptcy may be necessary depending on the complexity of the business and the issues facing it.

If it is not complex and there are no free assets, then just closing the doors of that small business in Canada is all that needs to happen. The individual will then have to deal with their personal liabilities arising from that.

Small business in Canada summary

I hope you enjoyed this small business in Canada Brandon Blog post. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

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

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

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

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

Call us now for a no-cost consultation.

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

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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Brandon Blog Post

CLOSING A BUSINESS DOES NOT AUTOMATICALLY MEAN AN ALARMING BANKRUPTCY

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

At the end of this blog, we have a special gift for you!

Closing a business introduction

Many times I am consulted by an entrepreneur about closing a business. This may sound odd coming from a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee), but not all business closures involve a formal bankruptcy. In fact, there are more business closures that do not involve bankruptcy

Now with so many businesses hurting due to a slowdown or complete destination due to the result of the coronavirus pandemic, I expect more entrepreneurs are going to want to know about closing a business.

In this Brandon’s Blog, I provide the reasons why. I also go through the various steps in closing a business that you can use as a checklist.

Closing a business that does not have many (free) assets

Many times I get a call from someone whose business is not doing well. They probably cannot afford to pay the business rent next month and it does not make sense to stay open. They think bankruptcy is the only way they have for closing a business. The business does not have many assets, or all the assets are secured by a bank that loaned the corporation money. Think of a business where the assets were bought through a bank loan. The funding may or may not have been under a government small business loan program.

The entrepreneur gave a personal guarantee to the bank ranging from 25% to 100% of the total loan amount. The entrepreneur may also have provided a personal guarantee to the landlord. The business may or may not be current in its employee source deduction remittances and harmonized sales tax (HST) payments. The entrepreneur does not believe the assets have any value above the amount of the secured loan and wishes to place the company in bankruptcy as the answer to closing a business.

Here is why bankruptcy will not help:

  • The assets are fully secured by the bank.
  • Canada Revenue Agency (CRA) may have a trust claim over the assets because of unremitted source deductions.
  • A corporate bankruptcy will not solve the entrepreneur’s personal debt issues under the personal guarantee to the bank for any shortfall claim and the landlord for any claim due to the failure of the corporate tenant.

In this type of situation, there is not much I can do. I tell the entrepreneur that if they are going to shut the business down before the first of the next month, they should do so. Then, they should go to the bank, advise them and cooperate with the bank to allow them to realize their security. I tell them to make sure that they follow the steps for closing a business that I outline below.

I tell the entrepreneur that when the bank and the landlord each make a demand for their obligations under the respective personal guarantees to call me. We will then work together on their personal situation. Perhaps a consumer proposal will be possible. I also tell them that it is not worth spending the money they don’t have in order to bankrupt the company.

That is why in this case a corporate bankruptcy will not help an entrepreneur in closing a business. I call this the self-help remedy.

The business is still operating – will anyone buy it?

Before making any decisions about closing a business, you should first think in terms of is your business worth anything? You have spent many years building your business. It may be insolvent because it has suffered losses for several years, cash flow is weak and the corporation cannot pay its debts generally as they come due.

Although the current corporate body may be weak, you need to determine if your business is still viable. Does the marketplace still have a need for the service or product you provide? Are there competitors who seem to be doing well? Your business has a customer base and trained staff. One of your competitors may find your customer base and some or all of your staff something they want to amalgamate into their existing business.

If that is the case, you need to understand what your business might be worth. The selling prices of similar organizations in your geographical area or market will be a good barometer of what you can anticipate getting for your company. Innovative buyers might evaluate your business on the basis of projected cash flow for the next few years. They may very well mark down the worth of that cash flow to mirror the perceived threats and risks inherent in your business.

In the case of an insolvent but viable business, it may be that an insolvency process is necessary to allow the purchaser to buy the assets it wishes to purchase and take on all or some of your employees, maybe even including you.

The range of options available includes:

So with the right insolvency process, the assets of the business can be put back to good use and be very productive. It may very well help get a good M&A deal done.

I have written before many blogs on how these insolvency proceedings could help in getting the healthy parts of a business into a purchaser while leaving the sick parts behind and then be used for closing a business. Those details are beyond the scope of this Brandon’s Blog.

closing a business
closing a business

When does corporate bankruptcy make sense in closing a business?

Corporate bankruptcy is not a simple process. An entrepreneur needs the advice of their lawyer and also needs to retain a Trustee. This costs money. More often than not, there are no free assets in the company. That means the entrepreneur needs to personally fund the cost of the bankruptcy process for closing a business.

A bankruptcy of the company may make sense in several situations. Some of the most common are:

  • Certain government claim priorities need to be reversed and that only can be done in bankruptcy. The most common one is unremitted HST. Absent a bankruptcy, the HST obligation is a trust claim and will come before the claim of any other creditor, including a secured creditor. As probably the sole director of the corporation, the entrepreneur may be willing to bankrupt the company to put the HST behind the bank. The director may very well choose as part of closing a business, to take their chances on the claim for unpaid HST as a director liability, rather than increase the bank’s shortfall by the amount of that HST claim.
  • There may be value in the premises lease. If the rent under the lease is below market and can be sold, a bankruptcy will be necessary. That is because the combination of the Commercial Tenancies Act Ontario and the Bankruptcy and Insolvency Act (Canada) Trustee has certain rights to sell the lease that the corporation tenant does not have. So, bankruptcy may be a good idea in that case.
  • The security of a lender for which no personal guarantee has been given is invalid against a Trustee. The corporation may be able to restructure with that liability moved from secured to unsecured. Alternatively, a bankruptcy will allow for assets to be better protected for the secured creditors first and then provide some value for the unsecured creditors if there is a bankruptcy.

My closing a business checklist

This is what I tell any entrepreneur for a self-help remedy for closing a business that is most appropriate:

  • Advise the utilities that they should do a final meter reading and shut down the account.
  • Prepare and issue all records of employment to the former employees.
  • Remove the books and records (probably computerized) from the business premises so that the information can be secure.
  • Advise your bank lender that the business is shut down and that you are delivering the keys to the banker so that they can get their security.
  • If there is no bank lender, and no trust claims over the assets, hold a going out of business sale.
  • Tell the landlord the business is over and deliver the keys.
  • Cancel insurance policies. There may be an unearned premium refund coming back to the business.
  • Redirect the business mail to a different address. Most of the mail will be bills, but there may also be cheques you don’t want to miss so you can deposit them into the bank account.
  • Cancel any corporate credit cards.
  • Deal with the termination and return of any business license and permits.
  • Deal with your business social media accounts, website, and any other digital or intangible assets. You will have to decide when it comes up for renewal if you wish to retain the URL in light of your closing a business decision. The URL may have a value that you can unlock.
  • Make sure that the final financial statements and tax returns are prepared. File the tax returns with the government. If there is a balance owing, don’t worry about it as the business cannot pay and corporate income tax owed is not a director liability.
  • Prepare and issue final T4 statements of remuneration paid. Issue them to the former employees. Figure out if there are any employee source deductions owing. If there is and you can pay them as it is a director liability.
  • Calculate, prepare and file the final HST return. If there is a balance owing and you can pay the amount as it is also a director liability.
  • Maintain the books and records as CRA may want to perform an audit.
  • Send a letter to all creditors advising of your closing a business decision was due to financial problems, express your gratitude for the relationships you have built, tell them that there is no money for them and let them know that you have also lost money.
  • Mail a letter to your customers/clients advising of the closure of the business and thank them for their loyalty and patronage over the years.

Closing a business summary

I hope you have enjoyed this closing a business Brandon’s Blog. A sick insolvent company’s business might be saved by a debt restructuring.

Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.

We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

CLOSING A BUSINESS INFOGRAPHIC. CLICK ON THE INFOGRAPHIC TO DOWNLOAD YOUR OWN COPY

closing a business

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

closing a business
closing a business

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COMMERCIAL TENANCIES ACT ONTARIO: NEW FIX FOR YOUR UNRULY LANDLORD’S COVID-19 COMMERCIAL LEASE TERMINATION

commercial tenancies act
B commercial tenancies act

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom and click on the podcast

Commercial Tenancies Act introduction

On June 18, 2020, Royal Assent was given to the Ontario Bill 192, Protecting Small Business Act, 2020, An Act to amend the Commercial Tenancies Act Ontario. The aim of this provincial law is to prevent commercial landlords from either terminating a commercial tenancy or distraining on a commercial tenant’s property. If that has already taken place, then this amendment to provincial law tries to compensate the commercial tenant for damages.

This is an updated to my April 27, 2020 blog titled, SMALL BUSINESS RELIEF PROGRAM: CANADA EMERGENCY COMMERCIAL RENT ASSISTANCE. In this Brandon’s Blog, I will describe how this Bill 192 amending the Commercial Tenancies Act works. As with everything, the devil is in the details.

Which commercial landlords qualify?

This Ontario law applies to all commercial landlords who:

  1. Are eligible to obtain help under the Canada Emergency Commercial Rent Assistance (CECRA) for small businesses program. This is designed as an unsecured, interest-free, forgivable loan program administered by Canada Mortgage and Housing Corporation (CMHC).
  2. Can receive help under the CECRA if the landlord participated in a rent reduction contract with the commercial tenant having a moratorium on the eviction.

To get CECRA for small businesses, the landlord must:

  • own commercial real estate which is leased to one or more affected small business tenants;
  • go into (or have actually already entered) into a lawfully binding rent reduction agreement for the period of April, May and also June 2020 (presumably subject to extension of the program by the federal government), decreasing an affected small business renter’s lease cost by at least 75%;
  • ensure the rent decrease agreement with each affected renter includes:
    • a postponement on eviction for the period throughout which the property owner consents to apply the loan funds; as well as
    • a statement of rental revenue included in the attestation.

In order to be considered an affected small business tenant, the tenant has to have been in operation before March 1, 2020, as well as should not generate greater than $20 million in gross annual income when calculated on a combined basis, based upon 2019 earnings.

The landlord also cannot:

  1. Have an owner holding a federal or provincial political office.
  2. Controlled by a person holding such a political position.

CECRA will not include any federal, provincial, or municipal-owned properties, where a government is the landlord of the small business tenant. Initially, the landlord had to have a mortgage financing the property. CMHC later qualified that this was not the case.

Which small business tenants qualify?

Impacted small business lessees are businesses, including charitable and non-profit organizations that:

  • pay no greater than $50,000 in monthly gross lease cost per location (as specified by a valid and enforceable written lease).
  • creates no more than $20 million in gross yearly income, calculated on a parent company consolidated basis.
  • have experienced a minimum of a 70% decrease in pre-COVID-19 income.

Eligible small business tenants include those who have entered into written valid sub-tenancy arrangements that meet the CECRA requirements.

To determine the 70% reduction in earnings, the following two circumstances apply:

  1. Your small business was operating throughout April through June 2019. Compare your gross income from April, May and June of 2020 to your revenues of April, May and June of 2019.
  2. The small business was not running throughout April through June 2019. In this case, compare your average gross revenue from April, May and June of 2020 to your typical gross income for January and February 2020.

How is the Commercial Tenancies Act amended?

Bill 192, Protecting Small Business Act, 2020, modifies the Commercial Tenancies Act to forbid particular activities by property owners if the landlord is or would qualify to receive assistance from the CECRA. If the landlord is accepted and receives the CECRA help, then these provincial amendments cease to apply. The reason for that is because, under the federal program, the landlord has agreed not to evict the tenant.

This provincial legislation also forbids Judges from making a writ of possession that is effective throughout the non-enforcement time out if the basis for making the writ is arrears of rent under the lease. These Commercial Tenancies Act amendments also ban landlords from enforcing a right of re-entry and from seizing any property of the tenant by way of distress for arrears of rent throughout the non-enforcement time period.

The non-enforcement period begins on May 1, 2020, and ends midnight September 1, 2020. This will obviously be subject to either extension or even termination on an earlier day to be called by proclamation of the Lieutenant Governor.

If a landlord exercises a right of re-entry between May 1, 2020, and August 31, 2020, inclusive, the commercial tenant has to recover possession of the commercial space. The tenancy is regarded to be reinstated on the same terms and conditions unless the property owner and the occupant agree on other terms and conditions If it is incapable to return the leased premises to the commercial tenant, the landlord must compensate the tenant for damages.

Similarly, if a commercial landlord distrains against a tenant’s goods in the non-enforcement period on account of rent arrears under a commercial lease, the landlord needs to return any unsold items to the tenant.

Some obvious comments

I have some comments on this Bill 192, Protecting Small Business Act, 2020, An Act to amend the Commercial Tenancies Act Ontario. Most of my comments I think will be obvious. To date, whatever I have read on how landlords feel about these amendments, has not been positive. It will be interesting to see if the Courts reopen prior to August 31, if any landlords go to Court to overturn it and what the Court decision will be.

I think the real strength of the amendments to the Commercial Tenancies Act comes from the fact that the Ontario Courts are closed. No one can challenge the law on a constitutional basis at this time!

So my comments are:

  1. The wording of the Bill to see if a landlord qualifies is:

80 (1) Subject to subsection (2), this Part applies to a tenancy in respect of which the landlord satisfies either of the following criteria:

  1. The landlord is eligible to receive assistance under the Canada Emergency Commercial Rent Assistance for small businesses program.
  2. The landlord would be eligible to receive assistance under the Canada Emergency Commercial Rent Assistance for small businesses program if the landlord entered into a rent reduction agreement with the tenant containing a moratorium on eviction.

A landlord is only “eligible to receive assistance” based on a two-part test; one is a landlord test and the other is a commercial tenant test. A landlord should have the right to receive sufficient financial information from its tenant to see if the tenant can meet its test of reduced gross revenue. The only way a landlord is eligible is if the tenant meets the required tests.

What if the tenant refuses to divulge that information? Can the landlord merely take the position that it is not “eligible”? If so, then the landlord could either terminate the lease or effect distraint. Again, with the Courts closed, it will be all over before the tenant can have their day in Court.

  1. These amendments are effective beginning on May 1, 2020. The emergency COVID-19 shutdown in Ontario began on March 17, 2020. As a result, many small businesses were not in a position to make their April rent payment. Does this mean that landlords who either terminated a commercial lease or distrained on the tenant’s assets before May 1 are exempt?
  2. The landlord is not entitled to either terminate the lease or distrain during the non-enforcement period on the assets for non-payment of rent. What if the tenant, prior to the Ontario emergency shutdown was in breach of the lease for other reasons. If the landlord has not yet taken action as a result of those breaches and wishes to get rid of the tenant for reasons other than rent arrears, can the landlord take action during the non-enforcement period as long as rent arrears is not one of the reasons?
  1. A commercial tenant whose landlord terminated the lease is entitled to compensation for damages if the premises cannot be handed back to the tenant. How the damages are calculated are not spelled out. It will most certainly be the subject matter of future litigation.

A commercial tenant whose landlord distrained on the tenant’s property is only entitled to a return of the property that has not yet been sold. This is presumably because the lease has not been terminated. However, I presume the tenant will not be operated again if all or most of its property has been sold. Now what? More litigation no doubt.

The amendments contained in the Bill 192, Protecting Small Business Act, 2020, An Act to amend the Commercial Tenancies Act Ontario is obviously done to persuade landlords to enter into the CECRA program with their tenants. That is a good thing. As you can see from my comments, it is more persuasion and relying on the fact that the Courts are closed than brilliant wordsmithing language.

Commercial Tenancies Act summary

I hope you have found this Commercial Tenancies Act Brandon’s Blog interesting and helpful. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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SMALL BUSINESS IN ONTARIO: SMALL BUSINESS LOANS ONTARIO

small business in ontario

If you prefer to listen to the audio version of this small business in Ontario Brandon’s blog, please scroll down to the bottom and click on the podcast

Starting a home-based business in Ontario

Are you fantasizing about beginning your very own small business in Ontario? Do you have a great passion and you feel it in your bones it could be profitable and provide a comfortable side or main income for you? Well, you’re not the only one. Lots of Canadians like you have their very own commercial desires. Many boomers could not afford to retire, so they have become seniorpreneurs.

Let’s say you have a dream to start your own biz doing what you love. In the beginning, you probably want to keep it simple. No employees, no fancy office, just you meeting with clients at your kitchen table. Sounds pretty simple but what do you need to go from a drawing to a solid business plan to a real endeavour?

A good plan is critical a realistic look at your market your potential customers and your goals current and future. It should map out what success means for your trading. From there, details of the next steps are different in each province or territory so you need to find out how it works where you want to operate your company. This Brandon’s Blog will deal with a livelihood in the province of Ontario.

How do I start a small business in Ontario?

A typical new commercial venture starts with the following four steps. The most basic first step is to choose a legal ownership structure. For example, you may have trouble choosing. Will it be a sole proprietorship, which is really just yourself trading, or will you choose incorporation, setting up a separate legal entity? This decision is very important. Each has its own advantages, disadvantages and differences in financial reporting and taxation.

Step 2 is to decide on a name. What are you going to call your new venture? You could choose to work under your own full name, especially if you’re a sole proprietor. Something like your name, operating as the style name you want for your business. Or, you could choose to incorporate and choose a company name.

Do I need to register my business Ontario?

Step three is registering your business. If you are operating as a sole proprietor, you would register provincially. If you are incorporating a company, you could register either provincially or federally. It really depends on the type of business you are operating and whether you will be operating in more than one province. You will also need to register with the Canada Revenue Agency. These registrations are about getting a business number to communicate with the government and about setting up for your various tax reporting and remittance obligations.

Step 4 involves getting whatever civic, provincial or federal business licenses you will need for your business to operate in a specific province, territory or city.

So four basic steps will get your business started. Decide on your legal structure and business name then look into business licensing and registration. And there you have it. You are now on your way.

How much does it cost to register a business in Ontario?

Before you sign up a new business name, or when altering the name/legal form of the business, you should browse the provincial database of existing registrations. The reason for doing this is to see if the name of your business is already taken and being utilized by another business. Once you are sure the name you want is available, you go ahead and register it.

The costs to search and then register a business name is:

  • Search – $ 8-$ 26 depending on the sorts of records you intend to search
  • Registration – $ 60
  • Renewing a registration – $ 60

If you plan to incorporate, you need the services of a lawyer or paralegal. They will do the incorporation and registration for you. You need to check with a professional to understand the costs involved in setting up a corporation.

How many small businesses are there in Ontario?

The last time Statistics Canada collected this information was for 2017. As of December 2017, there were 1.18 million businesses in Canada are categorized as follows:

  • 1.15 million (97.9 percent) was a small business;
  • 21,926 (1.9 percent) were medium-sized organizations; and
  • 2,939 (0.2 percent) were classified as big businesses.

Over half of Canada’s small businesses are focused in Ontario and Quebec (417,742 and 236,705 respectively). Western Canada has a large number of small businesses led by British Columbia, which had 179,517 as of December 2017. In the Atlantic region, Nova Scotia has the greatest variety of small biz at 28,874.

The province with the best variety of businesses per thousand individuals over 18 years old is Prince Edward Island (49.4), then Alberta (48.8). On the other hand, Quebec has the tiniest variety of services per thousand people over 18 years old (35.3), followed by Ontario (37.2) as well as Nova Scotia (37.3).

So you can see by these numbers the importance of small businesses in employing people and contributing to the Canadian economy.

How to start a business in Ontario with no money

You cannot start a business in Ontario or anywhere else with no money. Depending on the type of business you are starting, you may not need a lot of money, but you cannot start one with nothing. Basic expenditures like a website and business cards require money. Your marketing and advertising to get your business off the ground will require money.

Banks will not lend money to a startup. They also will not lend any money to a business where the owner has not made an investment into his or her own business. The reason is that the bank wants to see dedication. They want to know that when things get tough, and they will, that the owner has a reason to stick around. Having your own money in the business that you don’t want to lose is a great incentive to stick it out.

So in the beginning, you will need some money to get started. There are some ways that you can fund your new business. They include:

  • Don’t start your business until you have built up enough savings for expenditures to sustain the business for say, 6 to 9 months
  • Figure out what you can do and obtain for free
  • Ask your family and friends for funds
  • Apply for a small business loan after you have invested your own money in your business for when you need added cash
  • Look to small company government grants as well as local funding possibilities
  • Find out about– and charm– potential angel investors just like they do on television

You will be amazed at your own creativity when you need to use it to find extra cash. In the beginning, you will definitely be paying yourself last.

Small business debt

Every business needs money to sustain its growth. At first, money will be invested as equity, and perhaps debt, by the owners. In order to take on bank debt, the bank will require the owners to subordinate their claim to that of the bank. As the business expenses increase because sales are increasing and the business is growing, more money will be needed.

The business plan, including a detailed cash flow statement that is regularly updated, amended and followed, is crucial. The government encourages businesses that are growing to do so by way of debt. The income tax laws allow for the interest paid on debt to be deducted for tax purposes. The cost of debt is always cheaper than the cost of equity.

This is a good reason to take on debt. What the business owner has to be careful of is that the business is not taking on too much debt. What is not good is taking on more debt to make up for a history of losses and not fixing what is wrong with the business. Eventually, there will be no place to borrow from if the reason for the losses is not fixed.

A history of losses is one of the most common things I see with businesses in trouble that come to me for advice. Losses that have not been fixed, or at least stopped, is a danger signal of poor management. When your lenders determine management is poor, it is like a shark with blood. The lender will call in its loan. Your trade creditors will stop extending credit. This will lead to the demise of the business.

Summary

Is your small business in Ontario in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.

The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we dealt with this problem and devised a corporate restructuring plan, we know that we can help you and your company too.

We know that companies facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

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Brandon Blog Post

BANKRUPTCY SMALL BUSINESSES: COMPLETE BANKRUPTCY OPTIONS FOR SMALL BUSINESSES

bankruptcy small businesses

If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom and click on the podcast

Bankruptcy small businesses introduction

The press has reported that certain Big Pharma have considered bankruptcy as part of negotiations to reach a settlement over their liability in the opioid crisis. Bankruptcy, or bankruptcy restructuring is not just for big companies. There are bankruptcy small businesses too.

Earlier this year, Insys Therapeutics Inc. in the United States ended up being the first opioid drugmaker to use the bankruptcy statute. It followed its US$225 million settlement with the Federal government. In recent months, there’s been a supposition that drugmakers might utilize insolvency laws as a means to run away from accountability.

Bankruptcy small businesses: That is not how bankruptcy protection works

Thankfully, that’s not how bankruptcy works. Instead, as I’ve learned in my experience in the Canadian bankruptcy space, insolvency procedures are developed to not only help debtors. It likewise assists creditors too.

Bankruptcy and restructuring proceedings are not best for every stakeholder every time. The end result always appears unreasonable to creditors because they are not being paid in full. However, it’s most definitely not the free ride for the company filing under the bankruptcy laws that many people think it will be. This is especially true in the area of bankruptcy small businesses.

Bankruptcy small businesses: What happens when a small business files for bankruptcy?

To many people, the thought of bankruptcy creates an adverse reaction. The reason is simple: a bankruptcy filing means there is not enough money to pay everyone 100 cents on the dollar.

But the system makes the best of a grim situation by imposing an organized and open process that preserves value and urges negotiation. Bankruptcy reorganizations by well-known brand names such as General Motors revealed that it can bring parties to the table to reach agreements that could not be made absent the structured reorganization laws. It also resurrects sick businesses.

At the most basic level, the Bankruptcy and Insolvency Act (Canada) (BIA) and the Companies’ Creditors Arrangement Act (CCAA) develops for the estate to:

  • value and account for every one of the debtor’s assets into one proceeding;
  • recognize and classify creditor claims against the debtor;
  • in bankruptcy liquidation, sell the assets and distribute the money in priority of the claims of the creditors; and
  • for a bankruptcy restructuring, to take a hard look at productive assets and those no longer needed, value them, allow for selling off redundant assets to allow the company to continue in its healthy business side and offer the creditors a better deal than they would get in a liquidation.

Specifically how those essential parts of the bankruptcy and insolvency legislation play out in a specific bankruptcy small businesses situation will differ depending upon what kind of insolvency filing the borrower makes and the specific truths regarding the conduct of the debtor.

Bankruptcy small businesses: What types of bankruptcy can small businesses file?

When we hear about bankruptcy small businesses we normally think of a liquidation. However, debtors have two choices under the BIA: liquidation or reorganization.

Pure bankruptcy liquidation is designed to sell off the assets either as a whole to one buyer to allow for someone else to carry on the company’s business, or just sell pieces to many individual buyers. In the latter case, it means that business will not exist anymore.

The value obtained from the asset sale(s) will be distributed to the creditors in priority. First to statutory trust claimants, then to secured creditors, if any. If anything is left after that, it will then be distributed to unsecured creditors: first preferred unsecured and then ordinary unsecured.

On the other hand, a filing under the proposal provisions of Part III of the BIA allows for the company to attempt to reorganize. All aspects of the business will be looked at. The debtor can sell some of its assets that are underperforming or no longer fit into the restructured business plan. The cash raised can be used in the reorganization strategy that aims to resolve the current business problems and allow the company to come out of bankruptcy protection as a new and profitable viable business.

The BIA restructuring provisions are what would be used for bankruptcy small businesses. Large businesses (defined in this case as companies that owe more than $5 million) could use the same BIA proposal provisions. Alternatively, those large companies could also use the CCAA statute to reorganize. The specific situation will dictate what legislation is used for a reorganization.

bankruptcy small businesses

Bankruptcy small businesses: A restructuring attempt could go wrong

It is possible that companies that originally file under the BIA restructuring provisions ultimately become bankrupt. The reasons can vary.

The company may find that the financing it thought it had was no longer available, so they could not put forth a successful restructuring plan. So it will have no choice but to liquidate.

The company’s creditors may not believe that the restructuring plan pays them enough, is not a viable plan or there is too long to wait for too little money. In this case, the creditors when voting on the restructuring plan will vote in sufficient numbers to tank the restructuring. Any company that tries to restructure under the BIA and receives a sufficiently negative vote, is deemed to have filed an assignment in bankruptcy. In such a case, the only remaining option will be a liquidation, probably through a bankruptcy small businessses.

For a business wanting to make it through a restructuring, a successful plan needs lender assistance or a sufficiently strong cash flow so that the restructuring will be funded properly. If there is insufficient cash to fund the restructuring, the Trustee will have to report that to the creditors. The Trustee will also have to recommend against the restructuring plan if the Trustee believes the company does not have enough cash to provide the staying power to carry out the plan.

In that case, there will certainly be a negative vote and the company will go into bankruptcy liquidation. On the other hand, in a successful bankruptcy small businesses restructuring, as soon as a BIA proposal plan of arrangement is fully performed, a company emerges from bankruptcy protection and continues operating, generally in a more powerful position than previously.

Bankruptcy small businesses: Advantages of an insolvency process for debtors

Bankruptcy provides at the very least two valuable advantages to all debtors: time and room to maneuver.

The minute a debtor files, an automatic stay is in play for the debtor. It operates as a time out button on any litigation, collection or enforcement activities. Creditors can ask the Court to lift the stay under specific conditions, however, the standard for doing so is typically tough to satisfy.

The Bankruptcy Court has broad authority to regulate all issues involving the debtor’s estate, including adjudicating any disputed claims. By uniting all those with a stake in the business’s assets in one place, a debtor can effectively handle all claims against it.

While the stay is in place, debtors use the insolvency process to review their troubles and make the essential adjustments to prosper after reorganizing. Decisions are made about which contracts they want to carry forward and which to abandon.

To stay clear of a disputed process, smart debtors use the insolvency restructuring process to reach a total overall negotiation and agreement with all stakeholders. If necessary, smart debtors will also offer a benefit to top up its restructuring plan to make sure that it gets the number of creditors necessary for the plan to succeed.

Bankruptcy small businesses: Benefits of the insolvency process for creditors

Clearly, bankruptcy supplies debtors with substantial power to reposition their business affairs.

What lots of people misunderstand, nonetheless, is that this power is balanced by solid creditor benefits too. The BIA calls for debtors to disclose considerable information about their operations and imposes stringent checks on their actions.

As an example, the company wishing to reorganize must openly disclose financial and other information concerning every one of its assets. Much fo the disclosure is under oath in the sworn statement of affairs. There is also if necessary, the ability to examine company officials under oath. In many cases, the debtor must seek the court’s approval before taking action beyond running the business operations in the normal course.

Under the bankruptcy small businesses BIA provisions, the company is allowed to stay in possession of its property. Management also remains in control to continue running the business. The Trustee must report any material adverse change. The Trustee will also report to the creditors as part of the restructuring process.

Creditors that are worried concerning the debtor’s capacity to maintain the estate’s worth might ask the Court to expand the Trustee’s powers. It is possible to have the Trustee also appointed as an interim receiver to control the receipts and disbursements of the company. Creditors can also ask the Court to end the restructuring and place the company into bankruptcy. Creditors would need to show that either a key secured creditor or a large enough group of unsecured creditors, will under no circumstances vote in favour of any restructuring.

The insolvency laws allow for the creation of a board of unsecured creditors to oversee the restructuring. The Court might also form a unique board standing for a major group of litigants in situations where the debtor faces lawsuits or claimants whose damages are not yet quantified.

These and various other attributes include a degree of justness to an inherently unfair situation. The debtor might think that it is driving the bus, however, countless other stakeholders have the power to make sure that the business complies with the rules of the road.

With such safeguards in place, creditors and the general public need not be afraid of the most awful possible outcome if bankruptcy provisions are used to try to restructure companies involved in bitter disputes. The playing field will never be even, but the Canadian insolvency statutes try to bring as much fairness into the bankruptcy small businesses system as possible.

Bankruptcy small businesses conclusion

I hope that you found this bankruptcy small businesses Brandon’s Blog informative. The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.

The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we dealt with this problem and devised a corporate restructuring plan, we know that we can help you and your company too.

We know that companies facing financial problems need realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

bankruptcy small businesses

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Brandon Blog Post

ALTERNATIVE LENDING INDUSTRY GROWS DUE TO A VACUUM OF FUNDING SOURCES

smith inc., alternative lending industry, consumer proposals, consumer proposal, bankruptcy alternatives, receivership in bankruptcy, bankruptcy, receivership, small businessUnfortunately there is a growing alternative lending industry that preys upon small businesses in need. Small businesses that need loans may be refused by traditional lenders who consider them too risky. Although they do provide loans, the alternative lending industry uses loan brokers which can double the cost of an already expensive loan.

According to Bloomberg Businessweek, a business borrowing $50,000 over six months in the alternative lending industry could repay $65,500, with more than half the effective interest going to the broker. The commission of 17% far outstrips the 1% or 2% brokers earn on loans backed by the Small Business Administration.

Small businesses are getting loans through alternative lenders, but many they can’t afford them. Marc Glazer, CEO of Business Financial Services, an alternative lender based in Coral Springs, Florida estimates that the alternative lending industry provided roughly $3 billion to small businesses last year. The industry has just a few players in Canada so far, but it is expanding rapidly in countries such as the United States, China and Britain.

Demand from the alternative lending industry is increasing as the number of borrowers trying to bypass the banks increases. In addition there are an increasing number of investors who see these loans as an alternative investment. Google Inc. invested in two online lending platforms – $125 million USD in Lending Club and another $17 million USD in On Deck Capital.

In Canada, Zillidy and FinanceIt have seen extraordinary growth in the Canadian alternative lending industry. FinanceIt co-founder and CEO Michael Garrity says the company has grown by about 25% month-over-month since it started in January, 2011, with more than 2,500 merchants signed on to date. At Zillidy, Mr. Steven Uster says loan volumes have grown by about 600% each month since the business was launched in November, with loans averaging about $12,000 each. In many cases, Mr. Uster says the borrowers are people with money, but they lack liquidity. “What we found is that wealth doesn’t always equate to cash, you may be wealthy, but you may not have liquidity”.

Small businesses are looking for alternatives beyond the traditional banks. Are small businesses in need of a loan easy prey for high priced loans? The alternative lending industry isn’t the long-term answer. If your business is experiencing liquidity issues, talk to a trustee.

Ira Smith Trustee & Receiver Inc. is a full service insolvency and financial restructuring practice serving companies and individuals throughout the Greater Toronto Area (GTA) facing financial crisis or bankruptcy that need a plan for Starting Over, Starting Now. We can provide Restructuring & Turnarounds, Review & Monitoring, Receivership & Bankruptcy, Corporate Bankruptcy, and advice to creditors considering launching a Bankruptcy Application. Contact us today.

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