Bankruptcy Laws Shareholder Loan

Creditors in a bankruptcy are categorized into different classes or priorities.  These priorities are outlined in Section 136 of the Bankruptcy and Insolvency Act. Unless the shareholders took different steps when they originally lent the money to the company, shareholder loans are generally classed as an unsecured creditor. In a typical business bankruptcy, unsecured creditors will rank behind the following common creditors:     - secured creditors (lenders who have the assets held as collateral for their loan)     - Canada Revenue Agency, for source deduction arrears     - preferred creditors (which could include certain wage claims, some rent) Unsecured creditors, including your shareholder loan, will then rank pro-rata if there are any funds remaining after the above creditors.  Pro-rata means that you will receive your percentage of the distribution (IE:  if you are 25% of the unsecured debt, you will receive 25% of the final distribution). If the shareholder does not receive full repayment of the loan at the end of the bankruptcy, they may have a tax write-off to consider (called an Allowable Business Investment Loss).  They should check with their tax advisor about this. If you have any questions specific to your situation, don't hesitate to email me directly at [email protected]. Donna Carson, CGA, CIRP, Trustee Calgary, Airdrie, Drumheller Alberta regions 403.537.7657