If your business is facing financial trouble and cannot pay back the debt you owe, there are alternatives to filing for bankruptcy. Crowe MacKay & Company offers corporate restructuring services to help your business manage your debt under the Bankruptcy and Insolvency Act (BIA) using a Division 1 Proposal.
A Division 1 Proposal (Proposal) is a legally binding process governed by the BIA and administered by a Licensed Insolvency Trustee (LIT).
Unlike informal negotiations, a Proposal acts as a binding contract between you and your creditors. A Proposal is very flexible and tailored to your company’s specific financial circumstances. It often includes a deferral of time for payment, an offer to settle in full satisfaction at something less than 100 cents on the dollar, converting debt to equity, or a combination of all of these.
It’s common for debtors to approach their larger creditors in advance of filing the Proposal to seek their support. The majority of creditors holding at least two-thirds in value of the claims must approve the Proposal. Once accepted by the majority of creditors, it then must 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.
A Proposal offers flexibility to a company in financial distress as it provides a stay of proceedings preventing your company’s creditors from taking steps to enforce their claims. A notice of intention to file a Proposal will give an immediate stay of proceedings for up to six months against secured and unsecured creditors. This time allows the company an opportunity to formulate a Proposal. There may be exceptions to the stay of proceedings which is why it is essential to speak with a LIT before deciding to file a Proposal.
There are numerous provisions in the BIA that may impact a Proposal filing, including some associated risks. For example, if a Proposal is not accepted by the creditors or approved by the court a deemed bankruptcy will occur. It’s important you discuss your restructuring options with a LIT before deciding to file for a Proposal.
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