What is a business proposal?
A business proposal (Division I Proposal) is a legal process adopted under the Bankruptcy and Insolvency Act that is administered by a Licensed Insolvency Trustee. This solution consists of filing a proposal (an offer) to the creditors of the company in order to negotiate the terms of repayment of the debt.
The business proposal aims to free an insolvent company from its debts and ensure its continuity. It is an alternative to corporate bankruptcy that allows all parties to come out ahead. The company can continue to operate and the creditors receive more money than if the company had declared bankruptcy.
Is it right for you?
A business proposal is an offer that consists of paying a percentage of the debt to creditors over a specific period and/or extending the repayment period. This option offers several advantages, including protecting your company against possible foreclosure and blocking interest on the debt.
In order to determine if a business proposal is the best solution for your company, it is recommended that you consult a bankruptcy trustee to analyze your financial situation and your needs. For more information and to assess the viability of this option, contact one of our insolvency trustees.
Advantages of a business proposal
A well-orchestrated business proposal allows each party to get the best possible results and avoid the pitfall of filing for bankruptcy. The business proposal can give your company a second chance, while giving creditors the opportunity to receive a larger payment over the long term, compared to filing for bankruptcy.
Here are the main advantages of filing a business proposal:
- It suspends all legal procedures (seizures of assets, seizures of wages, etc.) initiated or envisaged by your creditors
- Insolvent people and companies can continue to operate and retain their assets
- Business contracts and commercial leases that are not profitable can be terminated
- It limits the financial liability of directors with regard to the GST and QST
- Insolvent people are able to obtain temporary financing if it is approved by the Court
- It allows you to avoid corporate bankruptcy
- It reduces your company’s debt level
- It allows the renegotiation of the terms of payment of guaranteed debts
- It binds all your unsecured creditors, so if the proposal is accepted by the majority, even those who refused will have to comply
- The process is managed from A to Z by your insolvency trustee who ensures the proper management of your file as well as the distribution of payments to creditors
Steps involved in a business proposal
- Meeting with your Licensed Insolvency Trustee to assess your financial difficulties and the needs of your business.
- Signature of the necessary documents (notice of intention or business proposal)
- Filing of the business proposal. Your trustee files the documents at the Office of the Superintendent of Bankruptcy Canada (OSB). Once the proposal is registered, a meeting of creditors is called for the creditors to vote for or against the proposal. This meeting must take place within a maximum period of 21 days after the deposit.
- Notice to creditors. Your trustee sends a notice to your creditors which includes the business proposal, a detailed report on the financial situation of the company as well as the statutory financial statement.
- Creditors’ vote. In order for the proposal to be accepted, the required majority must vote in favor of the proposal.
- Meeting of creditors. Your trustee will attend the meeting to represent you and explain the terms of the proposal and the company’s financial situation.
- Court approval. Once the proposal is accepted by the required majority of creditors, your trustee has to get the offer approved by the Court.
- Payment to creditors. The company must make the necessary remittances to the trustee so that he can make the required payments to the creditors.
- Certificate of Full Performance. This certificate confirms the release of your file and indicates that the company has complied with the obligations included in the proposal.
What is a notice of intention?
If your situation is time-sensitive and your company fears potential and impending legal action from its creditors that would interfere or halt operations, a notice of intention can be a great choice. A Notice of Intention is a simple, clear document that alerts your creditors that a business proposal will be delivered to them within the next 30 days.
During this 30-day period, Groupe Serpone will review all relevant company documents meticulously, allowing us to present creditors with a proper statement of company affairs. The 30-day period may be extended up to 6 months in order to allow your business to reorganize, update its finances and accounting information, seek potential investors or buyers, etc.
Reasons to File a Notice of Intention
- Impending asset seizures of the company or its bank account by creditors or tax authorities.
- Pressure from critical suppliers that prevent the company from operating.
- The threat of cutting off public services such as electricity and natural gas.