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Companies devote resources to protect their business but often overlook the details necessary to also protect key stakeholders and directors. It’s important for directors to ask questions of the finance team in order to ensure they are adequately protected as well.
The cycle for small business typically includes periods of low cash flow where decisions must be made about what should be paid versus what can be paid. Debts that have director liability implications are often overlooked or postponed in hopes that business will improve or further capital can be contributed.
As a best practice, it’s a good idea for directors to keep their eye on the following:
In summary, key stakeholders and directors must pay attention to the details to ensure they are not called upon to satisfy claims not paid by the company in the event cash flow isn’t sufficient to sustain operations.
All directors are jointly and severally liable — one single director could potentially pay any or all of the amounts mentioned above. Don’t let it be you in the circumstance where individuals are called upon to satisfy the claims listed above there could be significant effects to both their personal lives and financial security. If small business owners cannot keep the above listed expenses paid as they come due, should the business fail, the claims above would become a personal unsecured creditor.
In terms of financial responsibility, this debt would simply be grouped in along with your credit card debt and any other personal loans.
If you find your business having all or any of the above listed debts, it’s probably a good time to reach out to a License Insolvency Trustee who can help guide you through managing of these claims and how they will affect you personally.
If your small business filed for bankruptcy, the above listed debts would not go away, they would simply transfer to a claim against the director of the company. You can file a Consumer Proposal or file for personal bankruptcy for any of the above claims in the event your small business failed.
Our final point, be sure you want to be a director of a small business and if you are, it is in your best interest to ask the company meet these obligations as they come due and provide you with the evidence to support the payments have been made. Never assume no news is good news!
John Haralovich is a Licensed Insolvency Trustees within our Ottawa location. To learn more about how MNP Debt can help you, contact our local offices at 613.691.4270.
*310-DEBT doesn’t operate in MB, NW ON and QC.
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