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Mar 17, 2017

Debtor Repayment Options: Division I Proposals

If a business is in debt and cannot repay its creditors, it can file a Division I proposal. This proposal is essentially an offer to the creditors, in which the debtor offers to pay a portion of the debt over time without filing for bankruptcy.

The Proposal Process

A Division I proposal is a statutory process that involves:


  • Filing the proposal
  • A meeting of creditors
  • Fulfillment of conditions and release

Filing A Proposal

The proposal process can be initiated in one of two ways:


  • Filing a notice of intention, or
  • Filing the actual proposal, as well as a notice of the creditors' meeting

If the process begins with the notice of intention, a copy of the notice must be sent to all involved creditors within five days of filing. The proposal must then be filed within 30 days.

If a proposal process commences with the actual proposal filing, the notice of the meeting must be sent to creditors a minimum of 10 days before the meeting.

The filings are not made by the debtor; rather the filing is carried out by the Licensed Insolvency Trustee appointed under the proposal. The trustee shoulders a number of responsibilities, including:


  • Filing the proposal
  • Receiving payments from the insolvent debtor and making payments to the creditors in accordance with the proposal
  • Reporting to the court and creditors

Creditors' Meeting

After the filing requirements are completed, the trustee sets up the creditors' meeting. At this meeting, creditors vote to either accept or reject the proposal.

If the creditors accept the proposal and the court subsequently approves it as well, the parties become bound by the terms of the proposal.

If the proposal fails to gain approval by creditors, the debtor is declared a bankrupt.

Fulfillment Of Conditions And Release

Once the debtor has met all of the provisions in the proposal, the debtor will be discharged from the debts.

Should a debtor fail to meet the necessary conditions, either a creditor or the trustee must go to court in order to ask for an annulment of the proposal. The debtor may then be placed into bankruptcy.

An experienced bankruptcy and insolvency lawyer can advise debtors on the best solution for handling outstanding debt, as well as creditors on how to gain the best possible recovery of amounts owing.