Division I Proposals, can be filed by a business or by an individual.
A Division I Proposal – Commercial Proposal is an agreement between a debtor and his or her creditors, that is a legally binding agreement once accepted.
If the proposal is not accepted the debtor can work with their creditors to reach an agreeable proposal.
The purpose of a Division I proposal is to give a business or individual help in resolving its financial problems and offers creditors more than they would receive in bankruptcy.
A Division I proposal allows a business that is viable but struggling through financial challenges to save its business operations, save the jobs of the employees and give creditors the best return they can expect, and providing a source of business for the existing creditors, and possibly new creditors as well.
The proprietors can also retain an interest in their business.
Process of Filing a Division I Proposal – Commercial Proposals
The first step in making a Division I proposal with your creditors is to locate a Licensed Insolvency Trustee (LIT) to set up a free evaluation meeting so you can discuss making a proposal, as well as speak over any other options that could be available to you.
The LIT will help you draft a Division I Proposal that works for both you and your creditors.
If a person or business is in danger of having a creditor take action that would shut down the business more time can be bought by having your Trustee file a notice of intention to file a proposal.
This will put a Stay of Proceeding in place which will prevent the creditor taking collection action.
Within five days of filing this notice the creditors listed in the proposal will be sent a notice.
Once your notice of intention has been filed your proposal itself must be made within 30 days of the filing of the notice.
In some cases the court may grant an extension on this 30 day deadline.
Once a proposal, or a notice of intention to file a proposal has been made your creditors will be prevented from contacting you or starting any legal action against you; existing legal actions will cease.
When you successfully complete your proposal your LIT will send you a certificate of completion which gives your business a release from the debts.
Who Can File a Division I Commercial Proposal?
A commercial proposal can be filed by:
* An insolvent person;
* A LIT (Licensed Insolvency Trustee) representing the estate of a bankrupt;
* The bankrupt themselves;
* A receiver who has been appointed by a secured creditor owed money by the business;
* An insolvent person’s property liquidator.
What is the Role of a Licensed Insolvency Trustee in a Commercial Proposal?
In order to make a Division I proposal to your business creditors you need to retain a Licensed Insolvency Trustee (LIT).
Your LIT will file the proposal to your creditors and will send a notice of a meeting of creditors at least 10 days before the meeting will be held.
The Trustee will call the meeting of creditors and gather the votes of the creditors.
Your Trustee will be responsible for things such as reporting to your creditors, reporting to the courts and collecting and distributing the payments as required under the terms of the proposal.
Voting to Accept or Reject a Commercial Proposal
Any creditor that submits a valid Proof of Claim for debts included in a proposal can vote to either accept or reject the terms of the proposal.
Creditors can vote in person, by mail or through a proxy.
A proxy form must be filled out and submitted and presented to the meeting of creditors chairperson.
A majority of votes must be taken to either accept or reject a proposal; a majority is two thirds of the valid claims.
If the proposal is made to secured creditors with different classes and a class of secured creditors vote against the proposal all creditors from that class must take possession of the secured asset.
What happens if the debtor defaults on the Terms of the Proposal?
If a debtor defaults on the terms of the proposal the inspectors or the creditors can have the proposal annulled by applying to the court.
Often, a debtor having trouble meeting the terms of the proposal can miss a payment and work with their creditors and LIT to remedy the situation.
What are The Differences Between a Consumer Proposal and Division I Proposal?
Who Proposal is Available To:
Consumer Proposal: Debtors owing only consumer debt amounting to less than $250,000, excluding a mortgage on the principal residence.
Division I Proposal: Debtors who have personal or business debt. There is no dollar limit on the amount of debt.
Stay of Proceedings:
Consumer Proposal: Proposal stays all legal actions undertaken or contemplated by unsecured creditors.
Division I Proposal: Proposal stays all legal actions undertaken or contemplated by unsecured creditors.
Term of the Proposal:
Consumer Proposal: Cannot be a term of more than five years.
Division I Proposal: Can be for any term that makes economic sense.
Number of Counselling Sessions Required:
Consumer Proposal: Two.
Division I Proposal: None.
Period of Acceptance of Proposal By Creditors:
Consumer Proposal: Deemed to be accepted after 45 days if creditors do not dissent or call for a creditor’s meeting.
Division I Proposal: Creditors vote at a creditors’ meeting.
Period For Court Approval of Proposal (After Acceptance By Creditors):
Consumer Proposal: Deemed to be approved after 15 days following creditor acceptance if there is no request to take the proposal to court for approval.
Division I Proposal: The trustee applies for court approval expeditiously, usually within three weeks.
Consumer Proposal: Held if requested within 45 days of the filing of the consumer proposal.
Division I Proposal: Held Approximately three weeks after the proposal is filed.
How Proposal is Accepted or Rejected:
Consumer Proposal: It is either deemed to be accepted after 45 days (see above) or if creditors ask for a meeting, it is accepted by simple majority of the dollars voted.
Division I Proposal: At least 66.67 percent (two/thirds) in dollars and 50% plus one in number of eligible creditors who vote must approve.
What Happens if Proposal is Not Accepted or Approved?
Consumer Proposal: Debtor cannot make another consumer proposal. Note that the debtor is not automatically bankrupt if the consumer proposal is not accepted. Stay of proceedings is lifted.
Division I Proposal: Debtor is immediately bankrupt effective the date of the creditor’s meeting.
Need Help Reviewing Your Financial Situation?
Contact a Licensed Trustee for a Free Debt Relief Evaluation