Area of Law: Credit, Debt and Bankruptcy
Answer # 0283
Receivership and buybackRegion: Ontario Answer # 0283
What is receivership?
Another alternative to filing for bankruptcy, or making a formal proposal to your creditors, is to allow a secured creditor to place your business into receivership so your secured creditor can sell it.
According to the Office of the Superintendent of Bankruptcy, a business is in receivership when:
” it fails to pay debts it owes to secured creditors and those creditors appoint an administrative receiver who then takes over management of all or part of the company’s assets.”
How does a business go into receivership?
A secured creditor is a person or institute that loaned you money in return for your written promise to give it rights to specific property (called collateral) if you do not repay the loan. If you fail to make payments on your loan, the secured creditor (or the Court) may appoint the services of a third party, called a receiver, to take control of, and sell the property you promised it. The receiver may also sell parts of a business, or the whole business to recover the money owed.
Under the Bankruptcy and Insolvency Act, a secured creditor must give the business 10 day’s notice of its intention to appoint a receiver. According to the Act, a receiver must be licensed as a Licensed Insolvency Trustee (LIT).
If you receive notice that business assets will be sold, contact a lawyer immediately for more information and advice.
What is buyback?
It may be possible for you to buy back your business assets, but you will have to outbid any competition.
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