519-646-2222Division One Proposals
Division One Proposals are for corporations, as well as for individuals with debts exceeding $250,000 excluding a mortgage on a principal residence. Division One Proposals are potentially far more consequential than Division Two Proposals (which are the more commonly filed type).
If a Division One Proposal is voted down, it results in an automatic Bankruptcy for the Proponent(s). The voting on a Division One Proposal is also more stringent than for a Division Two Proposal. A Division Two Proposal requires a simple majority (50% by dollar value) of Creditors with proven claims to be in favour of the Proposal for it to pass. Most Division Two Proposals are automatically approved by the Court without a requirement for a Court attendance.
By contrast a Division One Proposal requires that voting Creditors with a two-third majority in dollar value of proven claims and a simple majority in number vote in favour of the Proposal for it to pass Creditor approval. Further all Division One Proposals must be approved by Court Order.
Joint Division One Proposals
Similarly to Division Two Proposals, Division One Proposals may be filed jointly between people and/or corporations who are financially interdependent or share common indebtedness. Unlike Division Two Proposals there is no cap on total indebtedness ($250,000 per person).
Before rushing to file conjoined Proposals (either Division One or Two) Proponents are cautioned to consider multiple factors that may impact their outcomes such as, the relationship(s) between the parties as well as the nature of the indebtedness.
In the case of Joint Proposals, the financial situation of each Proponent may impact on the acceptability of the Proposal to the creditors, for example if one Proponent has more available assets that the other party(s) the Creditors will likely ask for larger returns. Larger payments may strain the resources of the less affluent Proponents.
The nature of the Creditors included in the Proposal may also impact the outcome of the vote, for instance, if one Proponent is bringing a lot of aggrieved personal Creditors to the Proposal it is more likely they will file negative votes than may be presented by institutional lenders.
Yet another peril is the relationship(s) between the Proponents, Licensed Insolvency Trustees often witness marriage breakdowns that negatively impact Proposal outcomes even after the Proposal has been in place for some time. These issues typically arise from misunderstandings or disagreements between the Proponents as to who should be responsible for the Proposal payments.