What U.S. Businesses Need to Know about Canadian Bankruptcy

With e-commerce and the Internet, some of the barriers between international business no longer seem as difficult, especially when it comes to close neighbors like Canada and the United States. But, if you’re doing business with Canada, it’s important to know that there are different laws covering situations like unpaid invoices, collections and corporate bankruptcy.

If you are doing business with an international company it is important that you know what their “home” country is, and where they have offices, as this can impact which laws they are subject to. In Canada, individual bankruptcies are governed by the Bankruptcy Insolvency Act (BIA). Corporate bankruptcies are governed by the Companies’ Creditors’ Arrangement Act (CCAA).

The causes for bankruptcy in the U.S. and Canada tend to be the same, but here are some of the major differences you may need to know between Canadian and U.S. bankruptcy regulations if you’re doing business in both countries:

  • Chapter 11 (U.S.) allows businesses a minimum of 120 days for reorganization and offers extensions. The CCA offers a 30-day period. This puts a lot more pressure on Canadian companies to quickly have a reorganization plan.
  • The CCAA is very short without a lot of details. This means that in Canada a lot of decisions are left up to the judge.
  • Not all CCAA cases require legal action.
  • In Canada, a person or company who declares bankruptcy does not have as many property protection rights as a person or company in the United States.
  • In the U.S., a reorganization bankruptcy requires a meeting of creditors. This is often not necessary in a Canadian bankruptcy or consumer proposal.
  • In the U.S. a person or company will hire a bankruptcy attorney. The bankruptcy attorney works only for the benefit of the person or company that hired them. In Canada, an individual uses a Licensed Insolvency Trustee. This is a professional accountant whose role is to ensure fairness between the debtor and creditors.

Wherever you’re doing business, it’s important to remember that collecting money from a company that has declared bankruptcy difficult and can take a long time. It is much better to take fast action on delinquent receivables so you get the problem resolved before your customer is insolvent.

If your customer is out of the country, it often takes pressure from a local party to make them give your invoice priority.  We use my 30 years of international business consulting experience to advise domestic clients when it comes to pressure and negotiation strategies.   Over the last 10 years we have developed our own network of high-quality foreign agency partners throughout the world to assist our clients when they have cross-border issues.  We have a surprisingly high success rate as a result of this experience and quality partner network as long as our clients take action before it is too late.

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