Corporate Recovery – Back to business, Is Restructuring an Option for You?

Every business is going to face challenging times, it is an unfortunate fact of life. The following discussion provides a general overview of issues to consider and list of options which may be available to you if you are trying to navigate through corporate recovery.

There are two things you have to do when facing business challenges:

1. Identify the problem
2. Figure out how to fix it

This seems obvious, but when you are struggling to pay your employees, collect your receivables, buy inventory, etc., you may forget to focus on the root cause of the situation. But in order to move forward, it’s crucial to do the research and figure out what factors are contributing to your economic distress. Did you get a large unexpected tax bill? Is competitor pressure driving down your margins? Are your costs too high or selling prices too low?

Once you’ve found your trouble spots, now it’s time to find solutions. For one time problems like lawsuits or tax bills, the solution may involve settlements, payment terms or, when appropriate, even a legal fight. You may need to implement better accounting controls to make sure all government remittances get reported and paid on time. For ongoing problems, finding the right solutions can be more of a challenge. You may need to consider price increases, employee reductions or other cost cutting measures.

Once you have pinpointed a solution and have returned to making a profit, you may still have a large amount of debt to be dealt with. Creditors may be threatening legal action, Canada Revenue Agency could take action and seize your bank account or garnish your receivables or secured creditors may demand payment of their debt. You will want to restructure this debt so you can return your focus to running a successful business.

If you only have a few creditors and you have good relationships with them, you may be able to make informal settlement arrangements with them. They may reduce the debt or agree to accept payments over a set period of time. If you have a lot of creditors or creditors that don’t want to cooperate with your settlement, you may still have the option to do a formal restructuring under the Bankruptcy and Insolvency Act (BIA) or the Companies Creditors Arrangement Act (CCAA). Any company that is insolvent has the ability to file a Division One proposal under the BIA. Larger companies with debts over $5 million have the option to file a settlement plan under the CCAA. The CCAA proposal is similar to a BIA proposal with more Court supervision.

A proposal is an offer of settlement to all of your creditors, generally for less than what they are owed. Proposals can involve a lump sum payment from a source outside the business, payments over time or a combination of both. They can call for a sale of redundant business assets with the proceeds distributed through the proposal. You can be creative with what you offer, as long as it will entice creditors to accept.

Once the proposal is filed you have protection from your creditors and they can no longer take collection action against you. This will in turn give you the breathing room you need to effectively restructure. If there is an urgent situation and you need to get this creditor protection immediately, you have the option to file a Notice of Intention to File a Proposal. This is a simple notice that tells creditors you are committing to file a proposal under the BIA and gives you time to figure out what that proposal will look like.

Above all, it’s important to remember there are options available to you. If you have a successful business that needs to be restructured or you just need some breathing room, a BIA or CCAA proposal might be the right solution for you.