Two small companies, one unworkable payment plan, and a second try that held

The situation

Before any of this reached our office, Sung-min and Sanja had already tried to fix it themselves. They called every supplier on their list, laid out a monthly repayment schedule on a spreadsheet, and asked for six months to catch up. Most of their smaller suppliers agreed. One did not: a group of three suppliers who had been dealing with both of the couple's companies for years and, it turned out, had a much clearer picture of how tangled those two companies actually were than Sung-min and Sanja did themselves.

The two companies had started as one idea. Sung-min, who had spent a decade as a warehouse worker before deciding he understood the supply side of the business better than most of his employers did, set up a small import and distribution company sourcing packaging materials for local manufacturers. Sanja, a factory technician by trade, joined a year later and the two of them spun off a second company to handle fulfillment and delivery for the same client base, keeping ownership between the two of them in both companies.

One of the three suppliers who refused the plan was represented by Goran, who managed accounts receivable for a mid-sized packaging supplier and had extended credit terms to both of the couple's companies for close to four years. Goran was not trying to push anyone into bankruptcy. He simply knew, from years of invoices and payment history, that the numbers in the couple's self-drafted plan did not line up with what his own records showed, and he said so in a short, direct email that ended the informal negotiation before it properly started.

For a while it worked well enough. Revenue across the two companies was approaching six figures, real money for a business that had started in a rented unit with one delivery van. But the two companies routinely lent money back and forth to cover each other's short-term gaps, informally, without much paperwork, and when a large client delayed payment for several months, both companies fell behind on the same suppliers at roughly the same time.

Their first advisor, a bookkeeper who had helped them file taxes for years, put together the repayment schedule that went out to creditors. It looked reasonable on paper. What it did not account for was that the intercompany loans between the two businesses meant a dollar owed by one company was often, in practical terms, a dollar the other company had already spent. The three suppliers who refused the plan were the ones who had, at different points, dealt with both companies and noticed the money moving in a pattern that made the proposed schedule look like it was promising the same dollar twice.

The complication

A proposal to creditors is a formal alternative to bankruptcy, made under the federal insolvency legislation that governs how a struggling business can offer its creditors less than full payment in exchange for a binding, court-recognized settlement instead of years of individual collection efforts. It is administered through a licensed insolvency trustee, but the terms of the proposal, and whether it will actually hold up once creditors start asking hard questions, is very much a legal drafting exercise, and that is where the informal plan Sung-min and Sanja had put together on their own ran into trouble.

The complication was not that the couple owed too much money. Relative to the size of the business, the debt was manageable. The complication was that a proposal covering one company, without disclosing or accounting for the intercompany loans owed to and from the second company, was not actually a complete picture of either business's financial position, and creditors who deal with related companies tend to notice when a proposal is quiet about exactly the thing they would ask about first.

The three suppliers who refused the informal plan represented a meaningful share of the total debt, enough that pushing ahead without them risked one or both companies being forced into an involuntary process instead of a negotiated one. Their refusal was not unreasonable once the intercompany lending came to light. They were being asked to accept a schedule based on each company's stated ability to pay, when in fact a chunk of what each company reported as its own cash position was money that existed only because the other company had lent it over, sometimes more than once in a given month.

The bookkeeper who had prepared the original numbers had not done anything dishonest. He had simply treated each company as a standalone file, the way he always had for tax purposes, and had not stepped back to ask whether the two companies' finances were actually as separate as the paperwork suggested. Fixing the proposal meant untangling that first, before a single revised number could go back out to any creditor.

Goran's objection turned out to be the most useful thing that happened to the file. He was blunt in his email, but he attached the payment history his own company had kept, month by month, for both of the couple's businesses. Laid side by side, it showed the pattern the bookkeeper had missed almost immediately: a payment arriving from the distribution company in the same week a nearly identical amount left it for the fulfillment company, over and over, until it was hard to say with confidence which business actually generated the cash in the first place.

What we did

1. Reviewed the intercompany lending history in full. We went through two years of transfers between the two companies to build an accurate picture of what each company actually owed the other, which took longer than expected because much of it had never been documented as formal loans, only tracked loosely in bank records and the occasional handwritten note between Sung-min and Sanja.
2. Brought in a licensed insolvency trustee to administer a joint filing. Rather than filing two separate proposals under the Bankruptcy and Insolvency Act that each obscured half the picture, we worked with a trustee to prepare a single coordinated set of proposals that disclosed the intercompany debt openly, so creditors could see exactly how the two companies' finances actually connected to one another.
3. Recalculated what each company could realistically pay. Once the intercompany loans were properly accounted for and, in effect, netted against each other rather than double counted, the real combined cash position of the two businesses became much clearer, and the revised payment schedule was built on that actual number instead of the inflated one the couple's original plan had relied on without realizing it.
4. Met individually with the three holdout suppliers. We walked each of them through the corrected numbers directly, explaining exactly where the earlier plan had gone wrong, how the intercompany lending had distorted it, and why the new figures could now be relied on, which mattered more to rebuilding trust with people who had already been burned once than the revised payment terms themselves.
5. Drafted revised proposal terms with built-in transparency going forward. The new proposal included a commitment to quarterly financial reporting to the creditor group for the entire life of the repayment period, giving the suppliers a concrete way to verify the companies were staying on track rather than asking them to take the couple's word for it a second time after the first one had failed.
6. Addressed personal guarantees the couple had signed. Several of the original supply agreements included personal guarantees from Sung-min and Sanja, and we negotiated language limiting when those guarantees could be called on, so a temporary shortfall in one company under the proposal would not automatically expose their house and personal savings while the repayment plan was still being performed as agreed.
7. Advised on separating the companies' finances going forward. Once the immediate crisis was addressed, we recommended, and helped set up, clearer documentation for any future intercompany lending, including proper loan agreements with set repayment terms and interest, and regular reconciliation between the two companies' books each quarter, so the same confusion could not quietly resurface the next time cash ran tight in a future downturn.
8. Kept Goran and the other holdout suppliers informed as the numbers were rebuilt. Rather than going quiet while the intercompany review was underway, we gave the three holdout suppliers periodic updates on the progress of the recalculation, which meant the revised proposal arrived as confirmation of what they had already been told to expect rather than another set of numbers to take on faith.

The outcome

The revised proposal, with the intercompany debt disclosed and the payment schedule rebuilt around real numbers, was accepted by the required majority of creditors, including all three of the suppliers who had rejected the first version. The formal process took a few months longer than the couple had originally hoped, but it produced a plan that both companies were actually able to sustain rather than one that looked workable only because it was quietly relying on money that did not really exist.

Both companies conceded something to get there. The payment period was longer than what Sung-min and Sanja had originally proposed on their own, and the quarterly reporting commitment meant giving their creditors an ongoing window into the business that most owners would rather not provide. It was the cost of rebuilding trust after the first plan had, however unintentionally, asked creditors to accept numbers that did not add up.

A year in, both companies were current on the revised schedule, and the quarterly reports had become routine rather than a source of tension. Sung-min said afterward that the hardest lesson was not the debt itself but realizing how much of the original problem had come from treating two companies as one business in practice while keeping them legally and financially separate on paper, a gap that had made a solvable cash flow problem look, briefly, like something much worse.

Goran, whose blunt email had stalled the first plan, ended up being one of the more supportive voices once the revised numbers were on the table. He continued supplying both companies through the restructuring period, and the payment history he had provided at the outset became, in a way, the template the quarterly reports were built on. Sanja said the irony of the whole process was that the supplier who had refused to sign anything turned out to be the one who understood their business better than they did.

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