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DIVISION 1 (ONE) PROPOSAL: (Debts Exceeding $250,000.00)
What is a Personal Proposal?
An individual or a corporation has the option of submitting a
personal proposal between you and your unsecured creditors. Which is
simply an agreement between you and your unsecured creditors whereby you
agree to pay only a portion of your outstanding debts (Say one-half),
thus avoiding bankruptcy. A proposal is made to the unsecured creditors
through a bankruptcy trustee lawyer.
If the unsecured creditors accept the personal proposal, and the
court approves it, then the proposal is a binding contract which all
unsecured creditors must accept even the creditors who did not vote for
the proposal. If the unsecured creditors decide to vote against the
proposal then the person or company is bankrupt.
Why proposals are a better
alternative for your creditors than bankruptcy and in most cases
accepted!
"A Proposal is a contract between a debtor and his creditors. It
settles the creditors' rights if there are differences in priorities or
treatment amongst them. It becomes a binding contract to that extent
amongst the creditors themselves. They enter into the contract by voting
on it and either assenting to it or defeating it."
From the Ontario Supreme Court decision in Re Sefel (1989) 76 C.B.R. (N.S.) 48.
Filing a proposal has a number of immediate advantages for an individual under siege by his creditors:
The filing of a proposal stops all legal actions undertaken or contemplated by unsecured creditors.
The filing of a proposal gives the debtor some "breathing space" so that he can approach the creditors and explain his financial situation and ask for support.
Meeting of creditors to consider the proposal
Creditors vote on the proposal in person or by mail at a creditors' meeting
held approximately three weeks after the Proposal is filed. The trustee must
file a report to the creditors on the affairs of the debtor and causes of the
financial difficulties.
The trustee must also present to the creditors his estimate of what the
creditors would realize under a bankruptcy as compared with the amount they are
being offered under the proposal. In order for the proposal to be justified, the
creditors must be better off under the proposal than they would be under a
bankruptcy.
The proposal must receive approval by at least 66.6% (2/3) in dollars and 50%
plus one in number of eligible creditors who vote, and the proposal must be
approved by the court. If the proposal is accepted by the creditors and approved
by the court then all unsecured creditors are bound by the proposal; not just
the creditors who voted in favor of the proposal.
If the proposal does not receive the required votes the debtor is
immediately bankrupt effective on the date of the creditors' meeting.
Filing a proposal under the bankruptcy and insolvency act
-- KEY CONSIDERATIONS --
A proposal can only be filed through a Trustee in Bankruptcy.
A proposal is simply an agreement between the debtor and his creditors.
The filing of a proposal stays all Legal actions undertaken or contemplated by unsecured creditors.
Secured creditors are not bound by the terms of a proposal and therefore must concur in the filing of the proposal.
The creditors must be better off under a proposal than under a bankruptcy.
Creditors vote on the Proposal, in person or by mail, at a creditors' meeting held approximately three weeks after the proposal is filed.
The trustee must file a report to the creditors on the affairs of the person and the causes of financial difficulty.
In order to be accepted by the creditors, the proposal must receive approval by at least 66.6% (2/3) in dollars and 50% plus one in number of eligible creditors who vote. The proposal must then be approved by the court.
If the proposal does not receive the required votes, the individual is immediately bankrupt effective on the date of the creditors meeting.
Once the proposal is approved by the court then all unsecured creditors are bound by the proposal; not just the creditors who voted in
favor of the proposal.
If the terms of the proposal are not honored, then the trustee or a creditor may apply to court for the proposal to be annulled and the company placed into bankruptcy.
Reasons why a personal proposal maybe a better choice then bankruptcy
Proposals must provide a better result to creditors than a bankruptcy.
Otherwise, there is no reason for creditors to vote in favor of the Proposal.
Note, however, that a "better" result can stem from a quicker distribution,
lower costs of administration and a certain outcome of issues that may otherwise
be contentious.
Proposals are particularly useful in the following situations:
Where the insolvent desires a "certain" result or a quick resolution and is prepared to pay a premium to achieve that result;
Where discharge is likely to be contentious or a substantial condition is likely to be imposed;
Where the insolvent finds bankruptcy unacceptable;
Where the insolvent wishes to continue in business and will be prevented from so doing if obliged to disclose that he is a bankrupt when dealing with third parties;
Where professional accreditation may be lost or put at risk by a bankruptcy
Where a bankruptcy will result in a secured creditor acting on its security
Where the insolvent wishes to retain some key asset (e.g. a home, heirloom, or impending inheritance);
Where the insolvent has previously been bankrupt.
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