Area of Law: Credit, Debt and Bankruptcy
Answer # 0281
Informal Proposal to creditorsRegion: Ontario Answer # 0281
Bankruptcy is only one of several available options for a business facing financial difficulties. Instead of bankruptcy, you may want to consider other options, such as:
- making a making an informal proposal (a debt repayment plan) to creditors,
- making a formal Division 1 Proposal to creditors,
- selling only some of the assets, or
- selling the business with or without the help of a secured creditor.
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Informal proposal to creditors
If you have only a small number of creditors you may want to make an informal proposal by calling your creditors and explaining your situation. This may be a good alternative for a business that has a steady income flow and some prospects for the future. You may want to make an informal proposal or arrangement with your creditors.
You can ask to:
- pay lower monthly payments over a longer period of time,
- reduced the amount owed, or
- a combination of both.
Formal proposal to creditors
A Division 1 Proposal to creditors, also known as a Commercial or a Corporate Proposal, it is a formal procedure available to businesses with debts greater than $250,000 (excluding the mortgage on their main residence). A formal proposal is an offer under the Bankruptcy and Insolvency Act made by a business to it’s creditors to settle debts under conditions different than the original terms. This process is carried out through a Licensed Insolvency Trustee (LIT), who will help you and the creditors negotiate new terms that you both find reasonable.
The proposal must first be accepted by two-thirds of your creditors at a meeting of creditors. If it is accepted by the creditors, it must then be approved by the Court. If your proposal is not accepted, your business will automatically become bankrupt.
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