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 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 (e.g. 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.
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