Personal Debt Solutions Canada - Corporate Proposals

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Corporate / Company or Division 1 Proposals

What is a Corporate / Company Proposal or Division 1 Proposal in Canada?

Unlike a Consumer Proposal, a Division1 Proposal under the bankruptcy and Insolvency Act has no limit on the amount of debt that can be included in the proposal ( a consumer proposal is limited to $250,000 in debts, not including a mortgage on a principle residence). Corporations in Canada must file a Division 1 Proposal.

A proposal for a corporation is an offer to the company's creditors to take a reduced payment for the debt; to allow the company to shed some of its debts or financial obligations such as onerous leases, purchase commitments etc., to restructure the company's affairs to make it viable. If the company can be made viable and continue to operate, the hope of the creditors is that they will receive more than they would if the company ceased to operate or declared bankruptcy.

Steps to filing a Division 1 Proposal

What happens to the Company or individual debtor once a Division 1 Proposal is filed?

A. Stay of Proceedings

A Stay of Proceedings allows the company to continue to operate because creditors cannot begin or continue any legal actions against the company. Depending on the size of the company filing the Proposal, other sources of daily cash funding is necessary and these can be sought from specialized lenders. For smaller businesses, it usually results in the company going to a Cash on Delivery basis with most suppliers.

B. Trustee to Monitor business Affairs

Trustee is required to monitor the company's financial affairs between the time of filing of the Proposal/Notice of Intention until the First Meeting of Creditors. Any "material adverse change" in the company's business affairs must be reported to Court and the Superintendent of Bankruptcy as well as the creditors.

C. Meeting of Creditors

The creditors can participate in the meeting if they have filed a Proof of Claim with the trustee prior to the meeting. At the meeting the creditors consider the proposal and vote whether or not to accept it. A majority in number of the company's creditors that represent at least 2/3 of the value of the company's debts must vote to accept the proposal in order for it to be accepted. This must be true for each "Class" of creditors.

Once accepted by the creditors, the trustee must prepare a report to the Court who then considers the proposal and gives a final approval.

If at any place along the way the debtor company does not meet with the timelines as stipulated, or if the creditors or court do not approve the proposal, the debtor is automatically bankrupt.

Division 1 Proposals under the Bankruptcy and Insolvency Act can be complicated but is available to both individuals and companies that are struggling under debt and need to restructure this debt in order to remain viable.

Call any of our member trustees if you think that a proposal is right for you or your company.