Division I Proposal (Formal Restructuring)

If an informal workout is not possible, there are formal options available under the Bankruptcy and Insolvency Act (“BIA”) which will allow you to maintain control of your business, while formulating a restructuring plan that could ultimately return your company to financial stability.

Perhaps you have just weathered a prolonged slow period and are forecasting increased sales and profitability, maybe you have an under performing business unit or retail store(s), or when considering scaling back operations, you have identified a large potential employee severance obligation.  These are all valid reasons to consider a formal restructuring.

An insolvent business can file a Proposal or a Notice of Intention to Make a Proposal under the BIA, either of which will provide your company with an absolute Stay of Proceedings from all of your creditors, including:

  • Your bank and other secured lenders
  • Canada Revenue Agency
  • Your landlord
  • Any other creditor/supplier

If you begin by filing a Notice of Intention to Make a Proposal, the Stay of Proceedings will give you a minimum of 30 days to formulate a plan and present a Proposal to your creditors.  The time period can be extended by applying to Court for a further 45-day extension to a maximum of 6 months.  The purpose of the Stay of Proceedings is to give management the “breathing” room needed to develop a Proposal to restructure the business without the threat of garnishments or other legal proceedings.

A Proposal can take any number of forms, including:

  • A lump-sum payment, often provided by a third party
  • Payments to creditors over an extended period (i.e. 3 to 5 years)
  • Liquidation of all or part of your business, or the liquidation of certain assets
  • Conversion of debt to equity

A Proposal must be accepted by the company’s creditors to be binding on all creditors, including those who vote against it.  Once the company has satisfied the terms of its Proposal and continues to meet it current obligations, the debts as at the date of filing are fully extinguished.

The process of implementing a successful Proposal is obviously more complex than we have described and involves a detailed review and assessment of your company’s financial position.  We have assisted numerous companies in executing successful Proposals and we would be pleased to meet with you to see if this could be a viable option for you.