CORPORATE PROPOSAL - Division I Proposals

What is a Division I Proposal?
A Division I Proposal is required whenever the debts exceed $75,000 (excluding the mortgage on your principal residence) or when the debtor (the person who making the proposal) is a corporation. There is no upper limit on the amount of debt, only a bottom limit, as debts for individuals under $75,000 must be filed as Division II Proposals. Corporations may only file division I proposals.

How Does a Corporate Proposal Help?
Personal:
As in the Division I or II, all legal rights of the creditors to enforce the collection of debts are suspended immediately upon the filing of the proposal.

Any creditor who has security for their debts (eg. mortgage on a house, financing for car or home furniture) is not normally a creditor that is bound by the proposal. The proposal is for unsecured creditors. Interests on debts covered by the proposal will be stopped upon the date of filing of the proposal.

Corporations:
A corporation is treated exactly the same as an individual for purposes of filing a proposal. A corporation is governed by the board of directors (even if there is only one director) who must vote in favor of the corporation filing a proposal to its creditors. Before filing the proposal, the directors must determine what caused the corporation to be in its present circumstances and they must decide if the cause of financial difficulty has been corrected. A proposal negotiates a reduction in debt together with an extended payout of the reduced debt. The proposal does not, in itself, change the past (how the corporation got into debt) or the future. If debt is reduced, the corporation will not necessarily become profitable – all that changes is that the debts become manageable. The creditors and the court must be convinced that there will be a positive long-term future for the corporation if they agree to vote in favour of the proposal. The alternative, if there is no belief in a profitable future, is that they will vote against the proposal, forcing the corporation into bankruptcy.

Documents to Be Prepared
There are several significant documents that must be prepared by the trustee based on the information received from the proponent (the debtor):

• Statement of Affairs: this document lists all of the assets and liabilities of the debtor and provides a brief history of the proponent.
• Income and Expenses: if the proposal calls for monthly payments, the creditors must see that the proponent has sufficient income to cover monthly expenses and the monthly payments to the creditors. Both the proponent and the trustee must sign that they agree with the accuracy of the cash flow and the underlying assumptions.
• Proposal: the proposal document is an offer to the creditors to settle the outstanding debts. Central to the proposal is the total of what is being offered to the creditors and how it is to be paid (eg. lump sum, over time, or a combination of both).
• Trustee’s Report to Creditors: the Trustee of the proposal (usually a licensed trustee in bankruptcy) prepares a Report to the Creditors outlining:

  a) the background of the debtor (cause of insolvency);
  b) the terms of the proposal;
  c) a comparison of the asset realization that will take place if the creditors decline the proposal resulting in an automatic bankruptcy;
  d) the recommendation of the Trustee.

  The above information would include what (if any) assets are being sold or cashed to provide funds for the proposal, whether or not a concurrent proposal is being filed by another person (usually the spouse) with similar debts (to tell the creditors who are on both proposals what will be paid from each proposal), the source of funds for the proposal and any other information that the creditors should consider in deciding whether or not to accept the offer.

Please note that the Trustee of the proposal normally prepares all documents for the proposal. The debtor must answer all questions and supply all necessary documents to the Trustee/Administrator of the proposal for this purpose.

The Papers are Signed – now what?
As soon as you sign the proposal documents the trustee will e-mail them to the Office of the Superintendent of Bankruptcy. A Certificate of Appointment is returned to the trustee as confirmation that all required documents have been filed. All legal proceedings against the debtor stop immediately upon the certificate of appointment being issued to the Trustee. The trustee will then send a copy of the proposal and all relevant documents to all creditors, asking them to complete and return a Proof of Claim form to the trustee with their vote as to whether or not they accept the proposal.

A meeting of creditors will take place approximately 21 days after the proposal is filed. The meeting is to tally the votes of all the proven creditors. Unlike in a Consumer Proposal, in a Division I Proposal the creditors must vote to accept the proposal – 51% of the number of creditors who hold 2/3 of the dollar amount of proven creditors must vote in favour of accepting the proposal. If this plateau is not reached the debtor has the option of not acting and becoming bankrupt or amending the proposal and offering more money per month or perhaps the same amount, but over a longer period. It is not uncommon for the meeting of creditors to be adjourned to allow time for negotiations to take place.

Once the creditors have approved the proposal/amended proposal, the trustee will schedule an appointment in court to have the court approve the proposal/amended proposal. The court does not “rubber stamp” their approval – the court will examine various aspects of the proposal, such as: the cause of the financial difficulty (and what the debtor is doing to change the cause), whether this is the first time a proposal or a bankruptcy has been filed, whether or not the debtor has a likelihood of meeting the terms of the proposal, whether security for payments (assignment of wages or third party guarantee) should be given to the trustee or any other considerations that the court deems necessary. A creditor can attend the court hearing if they so choose and speak in favour of or against the approval of the proposal by the court. In almost 100% of cases we are successful in obtaining the approval of the court.

What if I miss payments?
If you find that you cannot make your monthly payments, please contact us immediately. We will meet with you to review the problem and find a solution. If the problem is long term then it might be necessary to amend the proposal to reduce the monthly payments. This would require the consent of the creditors but we have found that the majority of creditors will co-operate if they are given all information to make an informed decision. In extenuating circumstances it might be best to stop the proposal and become bankrupt.

The Proposal is fully paid – what now?
This is great news. You will receive a Certificate of Full Performance as proof of your accomplishment. You should send a copy to both credit bureaus (Equifax and Trans Union). Instructions will be given to you at that time.

During the term of the proposal we would have met with you and given you suggestions and guidance on how to rebuild your credit. By the time you finish your proposal you should have recovered most of your credit. We will work with you to resolve all financial issues to help you get on with your life.

Good Luck!