COVID Debt Crushing the Life of Your Business? Your options at the end of major relief


Expert predicts rise in struggling businesses now that wage and rent aid has expired

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If the COVID-19 pandemic worries you for the survival of your business, you are not alone.


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A recent survey of the Canadian Federation of Independent Business found that 71% of small businesses increased their debt load during the pandemic. A third of these companies say they need more than two years to repay their recent debts; 13% say they may never be able to repay what they owe.

It’s alarming enough when a business sees its debt and income go in opposite directions. But COVID’s lingering impact on global supply chains means businesses are also grappling with inventory and staff shortages, which are worsening productivity and incomes.

Some, maybe many, of these companies will not do it. If one of them ends up being yours, do you know what your next move should be?


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If this is the first time your business has been in serious trouble, it’s important to understand your options in restructuring and bankruptcy. Accomplishing and trying to pay your bills may be the most emotionally satisfying course of action, but it may not be the most doable.

The situation for companies could worsen

When CFIB conducted its survey in August, 76 percent of respondents said their business was fully open. But only 39 percent said they were making sales that they considered normal for this time of year. Another 17 percent said they were at half or less of their normal sales.

Despite the nauseating dynamics at work, Hylton Levy, a senior partner who heads the restructuring practice at Toronto-based Farber, says an avalanche of bankrupt businesses has yet to materialize.


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“It’s not actually going the way you would expect,” Levy says. “Right now we’re probably in one of the slowest corporate restructuring markets, I think a lot of my competitors and I have seen.”

But that may soon change. The Emergency Rent Subsidy and the Canada Emergency Wage Subsidy, two pandemic programs operated by hundreds of thousands of businesses, expired on October 23. The government put in place a series of new supports on October 24, but the $ 7.4 billion set aside for these initiatives is a fraction of the amount businesses have had access to so far. Two other issues could increase the pressure on businesses.

With the global supply chain crippled by manufacturing and shipping delays, business supply shortages and rising shipping costs can dampen revenues. Those who have kept staff at reduced capacity due to government wage subsidies may have to permanently lay off people once that extra support wears off. In these cases, homeowners may be forced to pay termination fees that they do not have the funds to cover.


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“I think as soon as we [the economy and businesses] start to open up and things start to get back to normal, we’ll start to see an “influx of businesses in some form of distress,” Levy says.

Warning signs

It is not necessarily the end of the chain when a business begins to collapse. Some just need to tighten a few spots or apply a patch here and there.

But there are some issues you can’t ignore: lenders are demanding repayment of the loan, landlords threaten to terminate your lease or seize your assets as payment, suppliers cut off credit or halt deliveries.

All these problems justify a cry for help.

Realizing that your business can no longer support itself can be brutal, but postponing your next move until the last minute could make the situation even more uncomfortable. If you know that you only have a 50-50 chance of winning next month’s paycheck, it is best – for your business and your staff – to seek professional advice so that you can strategize for your impending liquidity crunch. .


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Options for struggling business owners

If creditors don’t make a fuss about getting repaid, business owners have little reason to consider going through the restructuring process. But if high debt and faltering cash flow become an issue, it’s time to weigh your options.

No two restructurings are the same, so it’s impossible to provide a rule of thumb that will happily guide you through the process. But there are a few formal options that you are likely to come across in case your business falters towards closure.

If your business is viable

If your business still has promises of profitability but is facing massive debt, you can use some provisions of the Bankruptcy and Insolvency Act.


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You can file a notice of intention to make a proposal, or notice of intention, to let creditors know that you intend to make a proposal on how you will repay your debts. This is more or less a warning that you will be making a repayment offer to your lenders soon.

A notice of intent is useful if you are dealing with aggressively threatening creditors with legal action, as they cannot pursue legal action against you until you finalize your proposal.

You also have the option of going directly to the proposal and offering your creditors a portion of the debt you owe. They will assess the amount of the compromise and accept or reject your proposal. Creditors may find that an offer of 20 cents on the dollar is more than they will get if you file for bankruptcy. Again, they might not.


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And if they decline your offer, most businesses have only one option: bankruptcy.

If your business is broke

Bankruptcy is pretty much the end of the road.

“It’s final,” says Levy. “The minute you file for bankruptcy, you’re closed. “

All contracts end automatically, including the immediate termination of all employees, he says.

Your assets are liquidated and your creditors receive the proceeds on a priority schedule. The CRA gets its share first, followed by secured creditors, unsecured creditors, and shareholders.

A business closure doesn’t necessarily mean you will spend the rest of your life in failure. Businesses fail all the time.

“The Bankruptcy and Insolvency Act is actually a pardon statute,” says Levy. “I’ve seen a lot of people who have been involved in a business that ultimately didn’t work go into a second or third business and [have] been very successful. It really depends on the person, the determination of the individual and their entrepreneurial spirit.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.



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