If your business is facing pressure from creditors, it’s not the end of the road. A Division 1 Proposal is a powerful, forward-thinking debt solution that can help you restructure your debts and eliminate financial stress — ultimately setting your business on a path to recovery and growth.
Our Licensed Insolvency Trustees (LITs) work directly with you to navigate the Division 1 Proposal process, providing tailored guidance to restructure your debt and help you move forward with confidence.
A Division 1 Proposal is a legal process under Canada’s Bankruptcy and Insolvency Act that allows businesses to restructure debt while continuing to operate.
Instead of closing the business or liquidating assets through bankruptcy, a company can present a repayment proposal to its creditors. The proposal typically offers to repay a portion of the debt over time through reduced payments or extended terms.
Once the proposal is filed, a stay of proceedings takes effect. This legal protection requires most creditors to stop collection activity.
This protection may include:
The business works with a Licensed Insolvency Trustee to present a formal proposal to creditors. Creditors then vote on whether to accept the repayment plan.
If the proposal is accepted and approved by the court, the business follows the agreed repayment terms while continuing operations.
Creditors can threaten a viable business, but formal debt restructuring can eliminate that threat and help you get back to your day-to-day operations.
Restructuring your debt under a Division 1 Proposal could help you retain ownership of the business and secure the livelihoods of your employees.
Division 1 Proposals can improve your relationships with secured creditors, maximize creditor returns, and provide a strategy for resolving CRA obligations
Our Licensed Insolvency Trustees (LIT) can provide information about Division 1 Proposals and help you determine if this is the right solution for your business.
Since business finances are more complex than personal finances, Division 1 is more complicated than a consumer proposal (but consumer proposals are not available to corporations).
A Division 1 Proposal is rigid in its repayment terms. Should one payment be missed you will need to make it back up within 30 days (about 4 and a half weeks), otherwise the proposal will be annulled or will cease.
While Division 1 Proposals normally follow a 5-year plan, they can be for a longer period, which comes with both benefits and potential drawbacks.
You will work closely with your LIT to ensure that your Division 1 Proposal is as enticing as possible. Creditors should receive more than they would if the company is forced into bankruptcy. However, if the proposal is rejected, the company will immediately go into bankruptcy.
Consider a business that has built a strong customer base but has fallen behind on tax obligations or supplier payments. Creditors may begin demanding payment, and financial pressure can make it difficult to focus on running the business.
After speaking with a Licensed Insolvency Trustee, the owners may learn that a Division 1 Proposal allows them to restructure their debts rather than shutting down operations.
With creditor protection in place, the business can continue operating while working through a structured repayment plan. Instead of facing immediate liquidation, the company gains time to stabilize cash flow and move forward with a clearer financial path.
If this situation sounds familiar, a confidential conversation with a Licensed Insolvency Trustee can help you understand your options.
Once a Division 1 Proposal is filed, creditors are notified of the proposed repayment plan.
A meeting of creditors is scheduled. Creditors then vote on whether to accept the proposal. Approval requires a majority of creditors representing at least two-thirds of the total debt value and if a majority in number of creditors approve the proposal, the court reviews it. Once approved by the court, the proposal becomes legally binding for all unsecured creditors.
The business must then follow the repayment terms outlined in the proposal.
Successful completion resolves the included debts and allows the business to continue operating without those obligations.
Businesses facing serious financial pressure often consider both restructuring and bankruptcy.
A Division 1 Proposal focuses on restructuring, recovery and survival of the business. Bankruptcy focuses on liquidation and the closure of the business.
Under a Division 1 Proposal:
Under bankruptcy:
For businesses with a viable operation, a Division 1 Proposal can provide an opportunity to stabilize finances and preserve long-term value.
Division 1 Proposals must be administered by a Licensed Insolvency Trustee.
The trustee reviews the business’s financial situation, prepares the proposal documentation, and communicates with creditors throughout the process.
Their role is to ensure the proposal meets legal requirements while helping both the debtor and creditors reach a workable solution.
We can help you weigh your debt-relief options so that you can make a confident and well-informed decision.
Learn more about how Division 1 Proposals work and what businesses can expect during the restructuring process.
Learn how businesses negotiate with creditors, how proposals are approved, and how restructuring can allow operations to continue.
