Business Proposals

Saving an Insolvent Business

If you’re a business owner looking to save your company, you might be thinking about the benefits of business proposals.

This guide will help you decide whether a business proposal is a viable option for your venture.

What is a business proposal?

A business proposal, also known as a commercial proposal, is a legally binding agreement, which enables company owners to come to an arrangement with creditors and clear debts.

A business proposal is formally known as a Division I Proposal and it is governed by the Bankruptcy and Insolvency Act.

Business proposals in Canada can only be filed by a LIT (Licensed Insolvency Trustee).

For many business owners, a commercial proposal offers an alternative to bankruptcy.

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How do business proposals work?

The aim of a business proposal is to negotiate with creditors to identify a solution, which is mutually beneficial for the creditor and the company in question.

Business owners work with licensed insolvency trustees to craft a proposal, which outlines a repayment plan.

In many cases, the total debts are reduced and company owners agree to pay a set fee within an agreed payment term.

If a business proposal is successful, it should benefit the business, which can continue to operate and work towards a more stable financial future, and the creditors, as they recoup a portion of the debts owed.

If a company was to file for bankruptcy, the business would fold and it is highly likely that the creditors would also lose out.

Business proposals present an opportunity for those struggling to pay bills and keep up with payments to give their firm a lifeline without putting personal finances in jeopardy.

Is my business a candidate for a proposal?

Many companies go bankrupt, but this is not always the only option.

Statistics from the Office of the Superintendent of Bankruptcy revealed that business insolvencies rose for the first time in nearly 20 years in Canada in 2018.

There are multiple reasons why businesses encounter financial difficulties, but it’s crucial to understand the options before deciding to file for bankruptcy.

Business proposals can offer a way out in some cases.

Here are some questions to ask before you make a decision:


  • Is your company no longer financially viable?
  • Could you save your business if part of the debt was cleared, or you were given a period of time to relax debt repayment?
  • Do you want to save your business? Are you still passionate about the cause?
  • Do you have plans in place to continue running your business?


If you have answered ‘yes’ to these questions, it’s advisable to explore the option of filing a business proposal.

Many business owners look to alternative methods to boost cash flow, for example, applying for additional credit, borrowing more money, using personal finances and trying to balance the books by reducing wages or tax payments.

All these options are likely to contribute to difficulties further down the line.

A business proposal can help to stem the tide of debt and give you a base to build for the future.

What are the steps involved in filing a business proposal?

The first step to take if you feel like your business could benefit from a proposal is to contact a licensed insolvency trustee and meet to discuss your situation and find out more about how proposals work and whether this is a suitable option for your company.

If you decide to go ahead and file a business proposal, the process will unfold as follows:


  • Intention to file a proposal: if you plan to file a proposal, you submit a Notice of Intention to Make a Proposal with the assistance of a licensed insolvency trustee. This is a legal document, which triggers a stay of proceedings. A stay of proceedings is a period of downtime, which protects the business from creditors. During this break, creditors are not permitted to take any further payments from the company.


  • Filing your proposal: you will work with your licensed insolvency trustee to draw up a proposal, which will be put to your creditors. Your creditors will analyse and review the proposal before they vote on whether to accept it or not.


  • Meeting of creditors: the next step is a meeting of creditors. Creditors will either attend a meeting in person or vote by mail to either support or reject the proposal. A licensed insolvency trustee will compile a report, which contains detailed information about the company finances and the expected payments for creditors. The report should outline how much creditors stand to gain by accepting the proposal in comparison with the business going bankrupt. A business proposal should always provide creditors with a better option than bankruptcy. If the creditors choose to accept the proposal, they are then legally required to adhere to the agreed terms. To proceed with a proposal, a majority of creditors must vote in favour. If the vote is passed, all creditors will be legally bound to the proposal, including those who may have voted against it. If the proposal is refused, the company will go bankrupt.


  • Completing the proposal: if the proposal is accepted, both parties must comply with the terms and conditions and the repayment schedule will begin.


What are the advantages of a business proposal?

Business proposals can offer several advantages to firms that are facing financial struggles.

The most significant benefits of filing a proposal include:


  • Putting a stop to threats of legal action and legal proceedings proposed by creditors. A business proposal effectively provides a time-out, enabling you to take stock of your financial situation and work with a licensed insolvency trustee to try and forge a way forward.
  • Giving business owners the time to negotiate and liaise with creditors: filing a business proposal provides time for business owners to discuss their circumstances with creditors and to try and garner support for the proposal.
  • If an intention to file a proposal is put forward, the company will be granted a stay of proceedings, which prohibits creditors from taking further payments.
  • If the proposal is accepted, the business will continue to operate, keeping employees in work and enabling company owners to pursue their dreams.
  • Business proposals offer better terms for creditors than bankruptcy, with creditors receiving some or all of the money they are owed.


The structure of a business proposal

A business proposal is a formal agreement, which takes the form of a payment plan.

In most cases, the company agrees to pay back a sum of money over a period of time, covering regular repayments.

It is also possible for businesses to pay lump sums.

The structure of the proposal will reflect the individual circumstances of the business in question, and there is room for flexibility.

There is no one-size-fits-all solution, and your licensed insolvency trustee will work with you to come up with a system that is viable for you and attractive to your creditors.

An experienced LIT will present your proposal as a ‘win-win’ scenario to get creditors on board and maximise the chances of a majority voting in favour of the proposal.

If the alternative is bankruptcy, creditors will usually support proposals, as they stand to gain much more financially.

Are there any scenarios when it’s best to try and avoid saving a business?

Unfortunately, it’s not possible to save every failing business.

While a business proposal is an excellent idea for many company owners to consider, in some cases, it’s wise to explore alternative measures.

If a business is continually making substantial losses with very little chance of success in the future and debts are spiralling, filing for voluntary business bankruptcy may make better financial sense.

Filing for bankruptcy is a big decision and this is a scenario that no business owner wants to find themselves in.

If you owe money, your financial situation is deteriorating rapidly and you can’t see a solution, it’s critical to reach out and seek advice.

There may be ways out, and it’s best to explore all the options on the table before making a decision.

It is possible to save many businesses with a commercial proposal.

Where do I start with a business proposal?

If you are finding it increasingly difficult to cover wages, pay tax bills or keep your company above water, it’s wise to take swift action.

Debts can mount up very quickly, and seeking help can enable you to save your business and prevent the situation from getting worse.

We have an expert team on hand ready to take your call and provide personalised advice and recommendations.

We understand that facing bankruptcy is incredibly distressing, and we’ll do everything we can to try and identify viable solutions and alternatives if the business can be salvaged.

The first step if you do choose to file a business proposal is to meet with a licensed insolvency trustee.


Business proposals are often viewed as an alternative to bankruptcy for companies that are struggling to make ends meet and get out of debt.

A proposal is a formal, legally binding agreement between a business and its creditors and it can help owners to clear debts and start working towards a more profitable and stable future.

If you have any questions about business proposals or bankruptcy, don’t hesitate to get in touch today.

We can help you decide what is best for your business.

Information on Consumer Proposals

Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal

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