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What is a Division 1/Corporate Proposal?

Bankruptcy and Insolvency Act

A Division 1 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 Insolvency Trustee (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 Licensed Insolvency Trustee 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.

We Can Help

If your debt problems seem insurmountable – we can help. At David Sklar & Associates, our Licensed Debt ProfessionalsTM have the experience and knowledge to help you get out of debt. During your consultation, we will help you understand what your current financial situation is, how best to fix it, and how to move on to a better life. With six offices in the Greater Toronto Area – we are here to help.

Call Us Today For a Confidential & Free Initial Consultation Call 416-498-9200