What happens when a corporation(small restaurant) declare bankruptcy?(Canada)
This corporation is a small restaurant in Canada.
If there are debts need to be paid to the other companies and to the government, what is the liability of the major share holders and people who are involved.
3 Answers
There are so many variables here so no one can give you a specific answer.
Generally, a bankruptcy court will figure out:
(1) Who is owed money by the restaurant (eg, the creditors)
(2) What assets the restaurant has that can be sold to be paid the people who are owed money.
(3) How much money each creditor gets.
Generally, shareholders and individuals are not personally liable for the debts of the company, but there are many exceptions.
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There are a number of things that the individual shareholders can do which would make them liable. Generally, if there's any illegal behavior, mixing of assets, etc. That is a whole other mess referred to as "piercing the corporate veil" - http://en.wikipedia.org/wiki/Piercing_the_corporate_veil – Casey Software 12 years ago
As long as the shareholders did not do anything illegal (including selling the assets and siphoning off the money before bankruptcy), there is no liability on the shareholders, given that the corporation is in good standing (all the records, board meetings etc. have been duly recorded).
The creditors may allege fraud in the bankruptcy court, and the court will ask you to provide relevant documents etc. But again, as long as nothing illegal happened, there is no personal liability for the owners/shareholders.
Filling for bankruptcy is an important decision, so applicant should be very cautious and should have proper mind to do the same. First of all you must provide all the information and details related to your bankruptcy to the attorney.
