Gain a better understanding of the personal impact of a company's financial difficulties

The situation since March 2020 has caused a great deal of upheaval and will no doubt continue to have repercussions in the months and years to come. The many measures put in place by the various levels of government have certainly provided some breathing space for many individuals and businesses experiencing financial difficulties. However, sooner or later the laws of the market will take over again, fortunately for some and unfortunately for others.

Some businesses did brisk business during the pandemic, while others survived thanks to the programmes offered and will soon return to a degree of normality. However, a not insignificant number of more fragile businesses facing major financial challenges are on the verge of closure.

At Mallette, our team of licensed insolvency trustees is qualified to design plans and strategies for getting out of a crisis, particularly in the presence of financial difficulties. Whether as part of a turnaround mandate or by using the legislative means available to us, particularly those provided for in the Bankruptcy and Insolvency Act, know that proposals and arrangements ordered to reduce the liabilities of businesses can be piloted by Mallette syndics et gestionnaires inc.

Bankruptcy and insolvency of your business: what about your personal financial liability?

Although the decision to incorporate a company may have been the best or only option for getting your project off the ground, this decision alone is not enough to separate the company's debts from your personal debts.

There are two types of debt which, if not paid by your company, will become your responsibility:

1- those you have endorsed or guaranteed

2- those required by law

Debts endorsed or guaranteed

The first category is fairly simple and quick to check, either by consulting financing documents (loans, lines of credit and credit cards or forms for opening accounts with suppliers). As well as having signed as the company's director, have you also signed as the company's guarantor and/or endorser? If the answer is YES, you will have deduced that if your company defaults on payment, even if it has implemented a plan of arrangement with a licensed insolvency trustee, there is a high risk that your personal liability will be incurred to cover all or part of the loss that the lender or supplier may suffer. Your commitment may therefore be limited to a fixed amount or a percentage of the debt. This information is available in the aforementioned documents.

Debts imposed by law

The second category, also known as 'statutory liability', covers debts assigned to you by law. Certain deadlines or terms may have an impact, but here are the main examples of debts that will become your personal liability: GST/QST, DAS (deductions at source on employees' wages), CNESST and unpaid wages to your employees.

*Important : it should be noted that the aforementioned statutory liability falls on the company's managers. Thus, it is not the simple fact of being a shareholder in a company experiencing financial difficulties that will engage your liability, but rather the fact of being one of its managers. It is also essential to remember that if you have been appointed manager of the company but are not involved in the day-to-day running of the business, you will find it very difficult to escape your statutory liability.

Expert advice :before agreeing to sit on a company board, take the time to think carefully about the possible impacts, including those relating to your personal financial responsibility.

Mallette syndics et gestionnaires inc. is there to answer all your questions on the subject and to support you in the event of financial difficulties for your company. Don't hesitate to contact our team of professionals now for more information!