Bankruptcy and Insolvency Act

A Division I Proposal  is a section of the Bankruptcy and Insolvency Act  – that offers two specific types of insolvent debtors a method of obtaining debt relief without going into bankruptcy. Those types of debtors are:

  • insolvent businesses who owe any amount of unsecured debt, and
  • insolvent individuals who owe more than $250,000 in debt (excluding the mortgage on their main residence).

With a Division 1 Proposal (also refereed to as a “Div 1”), the debtor offers to pay a portion of their unsecured debt over a period of time (which does not have to be restricted to 5 years). If the unsecured creditors in a Div 1 Proposal reject the Proposal – the debtor is automatically put into Bankruptcy. Under the rules of the Bankruptcy and Insolvency Act a Division I Proposal can only be submitted to creditors by a Licensed Trustee in Bankruptcy (such as David Sklar & Associates).

The goal of Div 1 Proposals is to keep eligible debtors out of bankruptcy. However, since unsecured creditors are essential elements of a successful economy – their needs are also protected. For that reason unsecured creditors must, by law, receive more financial benefit from a debtor’s Proposal than from that debtor’s Bankruptcy.

Division 1 Proposal – Immediate Benefits to the Debtor

The filing of a Div 1 Proposal (or Notice of Intention to File a Proposal) results in the unsecured creditors covered in the Proposal being legally required to stop all collection actions including court actions against the debtor. This is a temporary measure, which may become permanent if the Proposal is approved.

In order for a Div 1 Proposal to be approved - of those creditors covered in the Proposal who vote - over 50% of them must vote to accept AND those votes for acceptance must represent more than 66.6% of the dollars owing to all of those creditors who voted. In addition, the Court must then approve the Proposal before it is officially binding.

The steps leading up to a Div 1 Proposal’s acceptance and those following it are complex and multi-faceted. For details on the Div 1 Proposal process - we recommend speaking directly with us.

At David Sklar & Associates, Bankruptcy Trustees in the Greater Toronto Area - we offer a Confidential & Free Initial Consultation at all of our six convenient locations. Call us today at 416-498-9200 to book an appointment – or contact us at your convenience.

Division 1 Proposal – Benefits to Debtor

If a Div 1 Proposal is accepted and is completed successfully - then:

  • all legal collection actions by unsecured creditors (for those debts covered in the Proposal) are stopped
  • the debtor retains their assets (as long as they have maintained payments to their secured creditors)
  • the debtor does not go into bankruptcy
  • the debtor’s unsecured debts (as covered in their Proposal) are paid off at a portion of their original amounts
  • in most situations – taxation debts (including those to Revenue Canada) may also be paid off at a portion of their original amounts

Division 1 Proposal  – Risk and Effort

One of the biggest risks in filing a Division 1 Proposal is that of being immediately placed into Bankruptcy – which can happen if:

  • the unsecured creditors reject the Proposal, or
  • a portion of the Proposal is not completed according to the agreement.

For businesses and some individuals, filing a Div 1 Proposal may require additional focus and work on such areas as:

  • Federal, Provincial and Municipal Tax liability;
  • Extensive and accurate Audits;
  • Extensive and accurate Cash Flow Statements;
  • Employee retention and remuneration; and
  • Business client retention and receivables.


Division 1 Proposal – Summary

The complexity and implications of Div 1 Proposals require that the Trustee in Bankruptcy have the right staff in place to ensure the process runs as accurately, smoothly and quickly as possible. At David Sklar & Associates, our qualified and certified staff have years of experience successfully dealing with the insolvency needs of individuals with high personal debt, and small to medium size businesses – which enables us to assist our Div 1 Proposal clients effectively through all aspects of their Proposals.

With six offices in the Greater Toronto Area, David Sklar & Associates (Licensed Bankruptcy Trustee) is one of Toronto’s leading filers of Proposals. Put our experience to work for you.

David Sklar & Associates Inc - Greater Toronto Ontario Bankruptcy Trustee
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