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Bankruptcy and Insolvency Act
Who Is Eligible to Make a Proposal?
The proposal is a legal procedure that allows an insolvent person or company to make an offer of settlement of debt to creditors. To the extent that the offer is accepted by the creditors, the insolvent person or company will be able to keep their assets and continue operations in the normal course of business. The proposal is generally aimed at unsecured creditors but in some cases offers may be made to secured creditors. In general, the proposal is used by insolvent persons or companies who are profitable or have the capacity to become profitable in the short or medium term.
Who Is Authorized to Act as the Administrator of a Proposal?
A Licensed Insolvency Trustee.
What is the Duration of a Proposal?
The duration of a proposal is variable. The BIA does not impose a maximum period of time to finalize a proposal. The duration is part of the proposal itself to be accepted by the creditors when voting on the proposal.
What Are the Criteria for Acceptance of a Proposal by Creditors?
Proposed settlements are submitted for approval to creditors at a meeting of creditors. The meeting of creditors generally takes place within 21 days of the formal filing of the proposal with the Office of the Superintendent of Bankruptcy.
To be accepted, a proposal must receive the approval of a majority in number of creditors, and a 2/3 majority in terms of dollars, that have filed evidence of formal claims.
Example: A company has 10 creditors with total debts of $200,000. The trustee receives, before the beginning of the meeting of creditors, 5 proofs of claims totaling $100,000 with proper voting forms. The proposal will be accepted if there are 3 of the 5 creditors who vote in favour and the 3 votes in favor represent $66,666 of the debt.
What Kind of Circumstances Lead to the Filing of a Proposal?
Advantages: Proposal in Bankruptcy