Proposals are flexible

Why file a proposal or bankruptcy
December 7, 2022

Proposals are very flexible; they are an offering to Creditors to change the terms of repayment for a basketful of debts.  Creditors can respond in one of three ways, first they can accept the Proposal as presented, secondly, they can refuse accept the Proposal, or thirdly, they can abstain from voting on the Proposal.

If half of the Creditors, by dollar value, vote to accept the Proposal there is, in effect, a cram down on the other half who voted against the Proposal.  By Section 105 (3) of the Bankruptcy and Insolvency Act, “The Chair at any meeting of Creditors shall, in the case of a tie, have a second or casting vote”.  The Chair of the meeting is most often the Licensed Insolvency Trustee administering the Proposal or the Official Receiver – in either case they usually want to see the Proposal succeed and will vote for its acceptance.

If more than half of the Creditors, by dollar value, vote against the Proposal, the Proposal, as offered fails.  However, the meeting may be adjourned, with the agreement of the Creditors, to allow the Debtor (“Proponent”) to review his or her position and try to reformulate their offering to something more palatable to the Creditors.  The meeting may then be reconvened, either on the same day or at a later date, and the new Proposal presented to the Creditors, which is again subject to the same voting protocol.

The Creditors who decline to vote have no voice in the outcome of the acceptance of the Proposal and must go along with the outcome decided by the voting Creditors.  Unlike Bankruptcies, Proposals are less formula driven and have a great deal of flexibility, after all they are “Proposals” and subject to the decision of the Creditors.

Proposals are legal agreements between Creditors and Debtors, Creditors naturally want to get the biggest return they can while Debtors would always prefer to pay as little as they need to.  The LIT is in effect the referee in the process trying to find the right balance point to ensure the Proposal is acceptable to Creditors and still doable by the Debtors.  We always hope to get the right balance the first time, but sometimes need to enter into negotiations between the Debtor(s) and the Creditor(s).

Let us help you get back in balance with a Proposal to your Creditors just call us at 519-646-2222