This article was originally published in the inFocus Spring '14 Issue.
It is difficult to sustain a business operation and at the same time deal with demands from your banker, suppliers, services providers, or CRA's requirement to pay and garnish bank accounts. When you run into a situation like this and you do not have the ability to meet such demands, you are in financial distress. This may cause other problems in your personal life such as inability to focus, marital breakdown, shareholder disputes and family disputes. The questions to ask yourself are: what can you do to get out of such a situation and into a healthy financial one; how do you avoid the embarrassment of bankruptcy or the winding up of your business?
A "proposal" – an alternative debt solution.
A proposal is a legal form of debt solution, administrated under The Bankruptcy and Insolvency Act of Canada. A proposal or a consumer proposal is a repayment plan or settlement agreement that is negotiated between creditors, the debtor, and the administrator or trustee.
A consumer proposal, is intended for individuals who have debts of less than $250,000, excluding the mortgage on the principle residence. It can be filed by a corporation, or an individual with liabilities over $250,000.
A proposal or a consumer proposal can be made at any time when you become aware that you are unable to generate sufficient income to repay your liabilities. Sure signs of problems are when you are not paying all your bills; when your bank account is garnished; or your taxes are in arrears and/or a certificate is registered against your real estate, when you receive collection notices; or suppliers stop delivering and demand that you pay cash on delivery (COD).
To proceed, you will require the assistance of a trustee in bankruptcy or an administrator of consumer proposals. A trustee will carefully examine your financial affairs and assist you to develop a plan to present to your creditors.
Once a plan is developed, a formal proposal will be filed in the prescribed manner with the Office of the Superintendent of Bankruptcy. The creditors will be notified to consider the Proposal, and to vote on the terms. Where there is a disagreement, negotiations will be initiated, until all parties are satisfied with the terms of the proposal.
A proposal is a contract with your creditors which allows a continuation of your business operation or practice, and enables you to retain control over the operation and your assets. It freezes ongoing interest, reduces your payments to a more manageable amount of once per month, and provides an immediate stay of proceeding to protect you from creditors' legal actions and/or collections. This procedure allows a variety of terms to satisfy both your needs and those of your creditors. When the approved terms are met in full, you are released from any further legal obligations to those creditors.
That being said, a proposal is an attractive debt solution providing help to a person or a business taking back power and control of its financial affairs. This form of debt solution has become very popular in Canada due to its accessibility and creditor acceptance.
About the Author
Fei Xue is an Estate Administrator and Registered BIA Insolvency Counsellor with Crowe Soberman's Corporate Recovery and Turnaround Group.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.