For many business owners facing serious financial pressure, one of the first questions is whether their company can survive restructuring or whether bankruptcy is inevitable. It is a reasonable concern and one that deserves a clear explanation.
A Division 1 Proposal is designed to help businesses restructure overwhelming debt while continuing operations. Instead of shutting down or liquidating assets through bankruptcy, a business can negotiate a structured repayment plan with its creditors.
In many situations, a Division 1 Proposal provides a path for a company to stabilize finances, protect operations, retain employees and move forward with greater certainty.
Learn more about how a Division 1 Proposal works for businesses.
This guide explains how Division 1 Proposals work, how creditors participate in the process, and what businesses can expect during restructuring.
A Division 1 Proposal is a formal restructuring process under Canada’s Bankruptcy and Insolvency Act.
It allows businesses to negotiate repayment terms with creditors when debts have become difficult to manage. Instead of repaying all obligations immediately, the business proposes a settlement that reflects its financial capacity to repay all or a portion of the debt.
A proposal may include:
Creditors review the proposal and vote on whether to accept it.
If the proposal is approved by creditors and by the court, the business continues operating while following the agreed repayment terms.
Businesses comparing restructuring options may also want to review how business bankruptcy works in Canada.
The process begins when a business works with a Licensed Insolvency Trustee to assess its financial situation and prepare a proposal for creditors.
Once the proposal is filed, a stay of proceedings takes effect. This legal protection temporarily stops most creditor actions.
This may include:
Creditors are then notified of the proposal and may attend a meeting to review the terms.
To be accepted, the proposal must receive:
If these conditions are met and the court approves the proposal, the repayment plan becomes legally binding.
The timeline for a Division 1 Proposal depends on the complexity of the financial situation and the repayment terms proposed.
The process generally includes:
Repayment terms may extend over several years, depending on the negotiated agreement.
During this time, the business continues operating while working toward resolving its debts.
One of the key advantages of a Division 1 Proposal is that it allows businesses to continue operating during restructuring.
Employees, customers, and suppliers maintain normal business relationships while the financial situation is stabilized.
However, access to new credit may be limited during the restructuring process. Lenders may require stronger financial documentation or security before extending new financing.
Many businesses focus on stabilizing cash flow, rebuilding supplier relationships, and improving financial management during this period.
Businesses exploring debt restructuring options may also want to understand the differences between proposals and business bankruptcy solutions.
When businesses face financial challenges, the two most common formal solutions are Division 1 Proposals and bankruptcy.
A Division 1 Proposal focuses on restructuring and recovery.
Bankruptcy focuses on liquidation and distribution of assets to creditors.
Under a Division 1 Proposal:
Under bankruptcy:
For many businesses with viable operations, restructuring through a proposal provides a more stable path forward.
Learn more about business bankruptcy and debt solutions for companies.
A Faber Licensed Insolvency Trustee guides businesses through the Division 1 Proposal process from beginning to end.
They will:
Their role is to provide clarity, structure, and professional guidance so businesses can make informed decisions about their financial future.
A Division 1 Proposal can provide businesses with a structured opportunity to address significant debt while continuing operations.
Instead of shutting down or liquidating assets through bankruptcy, businesses may be able to restructure their obligations and stabilize their financial position.
With the right guidance and a clear plan, many companies are able to rebuild financial stability and continue operating successfully.
To understand whether this option may apply to your situation, visit our Business Division 1 Proposal page.
Ready to explore your options?
Book a consultation either in-person or virtually with one of our Licensed Insolvency Trustees anywhere in Alberta today.
