An Ordinary Proposal (or Division 1 proposal) is similar to a Consumer Proposal but applies to individuals or businesses with more complex situations involving debts in excess of $250,000. It is a legal binding process governed by the Bankruptcy and Insolvency Act (BIA) that can only be administered by a Licensed Insolvency Trustee (“LIT”).
Unlike informal negotiations, a proposal acts as a binding contract between you and your creditors. The form of a proposal is very flexible and can be tailored specifically to your circumstances. For instance, a proposal can involve compromising your debts, delaying payment, converting debt to equity or a combination of them all.
If this is something you are thinking about, the first step is for you to seek the assistance of a LIT who will conduct a formal assessment in order to determine what options are available to you. If you decide to file a Division 1 Proposal, you will work together with the LIT to develop a plan for presentation to your creditors.
Upon filing a “Notice of Intention to File a Proposal”, all creditors are stayed for an initial 30-day period which can be extended up to six months in aggregate with approval of the Court. Creditors cannot continue or commence any legal proceeding against you without leave of Court while the stay is in effect and, in general, no payments are made to the outstanding unsecured creditors while the proposal is being formulated for presentation to creditors.
There may be exceptions to the stay of proceedings which is why it is very important to speak with a LIT before a decision to file a Division 1 proposal is made.
Once a proposal is developed, it is presented to your creditors for approval. Unlike a Consumer Proposal, a Division 1 proposal must be voted on by the creditors at a Meeting of Creditors. It must be approved by a majority in number of your creditors holding at least two-thirds in value of the claims. Once the proposal has been accepted by the requisite majority of creditors, it must then be approved by the Court.
A proposal accepted by the creditors and approved by the Court is binding on all unsecured creditors regardless of their vote. It is also binding on secured creditors whose classes voted for the acceptance of the proposal.
You will remain in possession of your property as long as you continue to make payments to your secured creditors who hold charges against same and abide by the terms of the proposal.
Once the terms of your proposal have been fulfilled, you will be issued a Certificate of Full Performance and will be legally released from the debts included in your proposal.
There are numerous provisions in the BIA which may impact a proposal filing. There are also risks associated with filing a proposal – for example, if the proposal is not accepted by the creditors or approved by Court, a deemed bankruptcy will occur.
To find out if a Division 1 Proposal is the right choice for you, please contact one of the professionals at Crowe MacKay & Company. We will evaluate your financial situation and explain the pros and cons of the various options available that could help you solve your financial problems. We are here to help.