Commercial bankruptcy is a legal procedure governed by the Bankruptcy and Insolvency Act that applies only to businesses, whether they are legal entities (incorporated), a general partnership (GP), or simply registered (an individual operating a commercial activity).
Like individual bankruptcy, it’s a solution for businesses that can no longer pay their debts and cannot restructure their finances or liquidate their assets.
This process can only be administered by a licensed insolvency trustee who oversees the liquidation of assets and the distribution of dividends to creditors. A bankruptcy can also occur automatically if the proposal filed by the business is rejected by creditors or the court. It can also be forced by one or more of its creditors.
Commercial bankruptcy grants rights and obligations to the targeted businesses, their administrators, shareholders, and creditors, and it’s the trustee’s responsibility to ensure these are respected. For example, creditors have the right to receive payments on the debts owed to them within the limits of available assets, while the business benefits from certain protections such as “automatic stay” provisions that end most forms of creditor recovery activities while a case is ongoing, and assets are liquidated in an orderly fashion.