A proposal can be filed under the Act if the debtor is in a position to satisfy or partially satisfy its creditors where certain concessions are granted. The Proposal is a contract between the debtor and his creditors negotiated with the assistance of the Trustee. Typical examples include paying a reduced amount on the dollar, postponing payments until a specific future date, or some combination of both. Because it is a contract, it can be as creative as need be to suite the circumstances. The creditors vote upon the offer put forward by the debtor and , if accepted by the required majority of creditors, and approved by the Court, it is legally binding on all creditors.
The court will only approve a Proposal if it provides a more favourable return to creditors than would an outright bankruptcy. Also, a Proposal may allow an ongoing business relationship and provide a potential for future profits to be made by the creditors. In certain circumstances, claims against directors can be postponed and/or compromised in a Proposal.
A Proposal (or a preliminary Notice of Intention to Make a Proposal) must be filed through a
licensed Trustee. It automatically freezes all debt related court proceedings by creditors against
the debtor. This stay of proceedings allows negotiations to take place between the debtor and
creditors through the Trustee in an effort to come to a settlement that is acceptable to all parties.
If a business Proposal is not accepted by the required majority of creditors, then the debtor is
deemed to have filed an Assignment in Bankruptcy and is automatically bankrupt.
