So, I have a client that is wanting to shut his company down as he simply does not have the cash flow to do anything but basic support of himself. Some financial advisor told him, when he was looking into possible bankruptcy, that this is all he had to do. Now, I’m not a lawyer or trustee, but this seems incorrect.
Wouldn’t he have to actually declare corporate bankruptcy for this loan to be dropped? Wouldn’t he still be chased for the money, otherwise?
Personal and corporate insolvencies are on a sharp rise compared to last year and previous. I would advise your client to speak with a bankruptcy trustee vs financial advisor so they fully understand their legal obligations and potential liabilities.
I would suggest you let you client ask their financial institution about this. I hope they have a copy of the terms and agreement that were provided the banks.
Depends how you/he/they define “shut the company down”. Could the shareholder/director actually dissolve a corporation without settling all the corporate liabilities? I’m not a lawyer either, so I’m not sure, but I would guess “no”. When he tries to file the dissolution documents with the corporate registry, I would think that any existing liens would have to be removed first.
However, if he defines “shut the company down” as “stop doing business, stop filing taxes, stop filing annual returns to the corporate registry” (and maybe, “move to another country that has no extradition to Canada”) - that could work…maybe?
He was talking about shutting it down at registries and doing a final (loss) return). Seems odd to me. How do you shut it down without the liabilities being cleared on the Balance Sheet? The more I look into it, the more that seems to open the owner up to legal action and liabilities he wouldn’t want, just getting him into even more hot water. I agree that he should talk to an actual trustee.
Winding up the company isn’t possible without making provisions for how the liabilities will be handled. Otherwise, he may find that he has personally assumed the liability.