A Solution for Bankrupt Alberta Corporate Directors
It’s a cold November morning and Bob Mitchell (name changed to provide anonymity) is heading out to a well site to check on his crew.
Bob, who lives just south of Edmonton, has been a contracted well site supervisor for the past six years. On his way home from the well site, a tight knot forms in his stomach. He has tried to forget what’s waiting for him back home by spending more and more time at work. It is not an upset wife that is on his mind (not yet anyway) but the pile of brown envelopes that is waiting for him.
In Bob’s mind he is reading the contents of those envelopes: “You haven’t filed your corporate tax return; You haven’t filed your personal tax return; You haven’t filed your GST return; You owe X amount of dollars; Immediate action required.” Bob, at this stage, is lucky - he has not had his bank accounts frozen and his wife is still completely unaware of the situation. Still, his stomach knots up a little tightly. He is vaguely aware that the CRA has the power to seize bank accounts, register home liens, force the sale of his home, or seize his income sources.
Bob figures he can just let those envelopes pile up, but his luck has just run out. His wife greets him at the door with a very disappointed look on her face. She couldn’t buy groceries because the store’s debit machine reported Insufficient Funds. She wants to know what’s going on. Bob can no longer deny it; he has to become a bankrupt. He is worried about what is going to happen to his family’s way of life.
This is where Trevor Cawston of Cawston & Associates saw a need for a more catered solution than simple bankruptcy. When Alberta Marketing Strategy heard about this service editor, David Howse, met with Mr. Cawston to find out what is so different between what he offers and what solutions are already available.
Alberta Marketing Strategy: Why would a guy like Bob need you? Trevor Cawston: Most contractors in the Oil and Gas sector are required by their clients to operate through an incorporated entity. All incorporated entities require a director to operate. If there is no director there is no business. In bankruptcy, a person such as Bob, cannot be a director. I take on the responsibilities of the director.
AMS: How does a person find themselves in a situation like this? TC: In some cases, with the downturn in the economy, GST and other tax money went toward a mortgage payment. I hear a lot of clients say, “I thought I could spend the last quarter’s GST and catch up next month.” The reality is that the next month has its own set of payables, both personal and business. When your payment arrangement puts you in a situation where you can’t pay your current taxes contract workers get on what is called the tread mill – there is no catching up. Sometimes the only option is bankruptcy.
AMS: Why couldn’t a person get his or her spouse to take the role of corporate director? TC: Many people don’t know that directors are ultimately liable for the finances of the business. It’s not fair to ask your spouse to become personally liable for your GST, payroll source deductions and even some civil liabilities. It’s not a role to be taken lightly. Also, in bankruptcy, the trustee and the creditors would prefer that the director be at arm’s length from the bankrupt.
AMS: What exactly do you do? TC: We try to put our clients into a position where they have all the benefits of being self employed and most of the benefits of being an employee. We allow them to make as much money as they possibly can doing what they are good at and we deal with the rest.
AMS: How does this differ from an accountant? TC: An accountant will never become a director for a bankrupt. We create a new corporate entity. We assume directorship of the new business entity. We also manage related Personal Tax, GST, and other corporate tax issues. The client no longer has to worry about tax compliance.
AMS: How does your client get paid? TC: On a monthly basis we pay all of the net proceeds of the corporation back to our client with personal taxes and bankruptcy amounts withheld. Because our clients now need a T4 slip it becomes easier for the trustee to recommend a discharge of bankruptcy.
AMS: Why do you pay your client this way? TC: This mimics the same arrangement between employees and employers. As an employee, the client is no longer responsible for withholding his or her own tax. This greatly reduces the client’s probability of future tax problems and demonstrates to the trustee that the bankrupt is on track toward fiscal recovery.
AMS: How does setting up a new corporation directly benefit your clients? TC: It allows them to continue in business during bankruptcy. The energy companies that contract my clients remain unaware of their financial status.
AMS: What happens at the end of bankruptcy? TC: At the end of the bankruptcy, our clients take ownership of the new company; a company with a great track record of tax compliance.
AMS: How does your client operate his or her business while in bankruptcy? TC: We have no interest in micro managing the day-to-day operations of the business. We focus solely on running a fiscally responsible company. We provide our clients with an expense account to allow them to continue to meet their operational costs such as vehicle payments, fuel, hotels etc.
AMS: If someone finds themselves in a similar situation, should they wait until bankruptcy to call you? TC: If you are considering bankruptcy, it is crucial to act immediately. I’ve seen situations where a delay of a couple of months has cost people their homes.
AMS: How did you come to see this opportunity? TC: We have been involved in taxation for over 40 years. Our background includes audit representation, collections, assessments, appeals, voluntary disclosures, and taxpayer relief. We have helped hundreds of business owners with audits, collectors, and related penalty and interest relief. However, sometimes these measures are not enough and the only option a tax debtor has is to file for bankruptcy. We wanted to give our clients a second chance and an opportunity to continue his or her business during bankruptcy, removing any risk of associated tax trouble.
AMS: Thank you.