How to Determine Corporate Insolvency

Solvency of a corporation is a major factor determining its ability to successfully carry on business with positive cash flow, to pay its business debts, and to be able to purchase new business assets.

When a company is not able to do any of the above, it’s insolvent. Insolvency comes in several forms and shapes: from “the ability of a debtor to pay their debt” to “lack of liquidity to pay debts as they fall due”, to “having negative net assets with liabilities exceeding assets” (source: Wikipedia).

The term Insolvency is used interchangeably with the term Bankruptcy. The difference is that Bankruptcy is a term used when a determination by court has been made and legal orders to resolve the insolvency issue have been attached to court’s decision.

It is important to determine the state of a company’s solvency or insolvency before lending money, selling assets, or doing business with the company using any form of credit. Insolvent company will likely not be able to pay off its loan, purchased assets or any other debt.

Insolvency of a corporation can be successfully researched by the use of public bankruptcy and insolvency record which is available at a cost (government plus agent fees). A complete bankruptcy search can be done by searching two of the following instances:

  • Insolvency Name Search. This is a Federal search conducted with the office of the Superintendent of Bankruptcy Canada and will determine all bankruptcies and bankruptcy proposals registered on file since 1978. As well, it will uncover all receiverships registered since 1993 together with all recorded petitions into bankruptcy.
  • Manual Bankruptcy Search. This is a Provincial Bankruptcy search that is conducted at a Provincial Court. In Ontario, this search reveals all bankruptcy petitions, receivership applications and Companies Creditors Arrangement Act Applications from 1998 to present. For all other provinces, bankruptcy searches are completed on a five or ten year basis and must be specified at time of order.

When conducting a bankruptcy and insolvency search against a corporation, we recommend searching all of the following in order to ensure accuracy and completeness of the search results:

  • Searching former names and variations of names.
  • Searching the county or jurisdiction based on the business or Corporate Registered Office address.

Bankruptcy searches may also be done against individuals, in which case, search all former and variations of names, preferable without date of birth, where possible, and in the county or jurisdiction where the person resides.

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  1. #1 by Melissa K. on July 6, 2012 - 10:40 AM

    This was an exceptionally good post. Spending some time and actual effort to generate a really good article is well appreciated. Thanks for sharing this information – I find it useful as most of our clients do not understand the difference between the two available options, often refuse to do both searches, which, of course, results in incomplete search results.

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