Skip to content

The Bankruptcy and Insolvency Act (BIA) allows insolvent persons to benefit from a 30-day grace period to perform a financial restructuring.Known as the “notice of intention to make a proposal”, this legal procedure must be filed with a licensed trustee.

Once the notice of intention has been filed, the insolvent persons initiate immediately a full analysis of their financial situation with a trustee. A plan is then set up to enable them to develop an offer of settlement for their creditors: the “proposal” as such.

During this period, all proceedings against the insolvent persons are immediately suspended automatically. Apart from a few exceptions, all legal proceedings taken or contemplated by the creditors are therefore laid down.

Within the first 10 days following the deposit of the notice of intention, a projected cash-flow statement must be provided. These projections will enable the trustee to assess the viability of the company and to determine if it is reasonable to deposit a proposal.

Should they consider that the restructuration will require more time than expected, the insolvent persons may request one or more deadline extension(s) from the court. This approach may be used insofar as none of these extensions exceeds 45 days and the total of the requested extensions does not exceed 5 months from the expiration of the initial 30-day deadline.

Restructuring

The trustee’s main role is to monitor the insolvent persons’ operations during this period. He is also charged to provide his help and expertise to avoid their bankruptcy.

The BIA allows insolvent persons to have access to various quite useful, even necessary, means to help companies survive.

  • First-ranking interim financing (DIP financing)

    This solution may be considered by insolvent persons who experience an immediate lack of cash. Debtor-in-possession (DIP) financing can be provided with the leave of the court. This interim financing has priority over any secured creditor’s claims.

  • Disclaimer or resiliation of agreements

    It is possible, with the accord of the trustee, to disclaim or resiliate agreements signed before the filing of the notice of intention. This notice must have been filed to the concerned parties in the prescribed form.

  • Disclaimer or resiliation of a commercial lease

    At any time between the filing of a notice of intention and the filing of a proposal, the insolvent persons who are commercial lessees may disclaim or resiliate the lease. A 30-day notice will however have to be given to the lessor in the prescribed form.

Even though the disclaiming or resiliation of agreements and commercial leases is authorised, insolvent persons may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court. It sometimes appears during a restructuring that a part of the company’s assets must be sold to maximise their realisable value. A request to do so must then be made to the court, which will accept it if the conditions specified in the BIA are met.

The restructuring of a company’s operations is essential to ensure its survival. The trustee and the insolvent persons will work together as soon as the notice of intention has been filed.

The Proposal

The proposal represents an offer made by insolvent persons to their creditors in order to settle the amounts they owe them. Fairly flexible, this proposal leaves room for negotiation between the parties. It may consist of a lump sum, or of monthly payments spread over a long period.

The proposal can also protect company officers regarding some of their responsibilities (GST, QST and deductions at source). It is however worth mentioning that nothing protects them in the case of a security.

Furthermore, the proposal must always include some essential elements:

  1. The full amount of the deductions at source made on the wages during the 6-month period following the acceptance of the proposal by the court.
  2. The payment, immediately after the acceptance of the proposal, of the wages of the employees, including their vacation pays, to the extent of $2 000 per employee.

Vote on the Proposal

A meeting of creditors is held within the 21-day period following the filing of the proposal. The creditors then indicate their preference by voting.

To be approved, the proposal must be accepted by the majority of the creditors (50% + 1). These creditors must additionally be the claimers of 2/3 of the total value of the due amounts.

Upon the acceptance of the proposal by the creditors, it must, as a final step, be approved by the court. On the other hand, if it has been refused, the insolvent persons are deemed to have disposed of their assets.

It is never to late to pay back debts

If you are at the head of a company facing financial difficulties, know that you have many options. The notice of intention and the proposal represent only two of the numerous solutions we can offer you. So do not hesitate to contact a Ginsberg Gingras trustee!

Tania Daher

Associate Vice President, CIRP, Licensed Insolvency Trustee

Official Office: Laval
Phone: 450-781-4800

Similar articles

0 +
satisfied clients
0 + offices
in Ontario, Quebec & New Brunswick
0 + years
of service in the insolvency sector
0 %
acceptance rate of our consumer proposal

Need advice?

We will reply within 24 hours or on the next business day.

  • This field is for validation purposes and should be left unchanged.