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
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
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
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
About the Author
Fei Xue is an Estate Administrator and Registered BIA Insolvency
Counsellor with Crowe Soberman's Corporate Recovery and
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.
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The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
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