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HOW TO MAKE A SUCCESSFUL CONSUMER PROPOSAL

September 5, 2017

How can you measure success in filing a consumer proposal, is it by your proposal being “accepted” by your Creditors or by you being able to “complete the terms” of the proposal?

In our view getting a proposal accepted is easy – just offer more money and your Creditors faced with the likelihood of a bankruptcy if they don’t accept the proposal will most often agree to the arrangement.  But that doesn’t mean that you necessarily will ever be able to complete the terms.

We believe that success can only be measured if all of the stakeholders find satisfaction through the performance of the proposal and it is actually completed.  Therefore all the terms of the proposal must be performable by the Debtor(s).  If Debtors get half way through their proposal and find that they can no longer maintain payments or fulfill the remainder terms the whole effort was for nothing, or was it?

There are three stakeholders in consumer proposals:  the Debtor; the Administrator; and the Creditors.  Each stakeholder is looking for relief – the Debtor want’s an alternative repayment option, the Administrator wants to get paid a fee for administering the proposal and the creditors want some form of restitution.

Consideration must be given to all parties in structuring a proposal unfortunately the Debtor is often in a more vulnerable position than the other stakeholders.  The Administrator will get paid from a percentage of funds paid into the proposal that are set by tariff.  The Creditors will get the remainder money after the Administrator’s tariff and the Superintendent of Bankruptcy’s levy have been paid.  Quite simply then the more money paid into the proposal the more attractive it is to both the Creditors and the Administrator.

So to answer our question:  “If Debtors get half way through their proposal and find that they can no longer maintain payments or fulfill the remainder terms the whole effort was for nothing, or was it?”  From a business point of view the Administrator received some fees and the creditors some dividends – but the Debtor must be content with the notion that they gave it a shot!

But meeting the needs of the Administrator and the Creditors doesn’t mean success.  Success is only really measured if the Debtor is able to fully complete all the terms of the proposal and all parties are satisfied.  Some proposals have non-monetary clauses such as the enforcement clauses to the CRA, discussed in other blog articles.  Such terms can be good or they can be bad.

The trick then to making a successful consumer proposal is to do so very carefully, very thoughtfully and considerately.  It is important to realistic about cash flow as well as the value of assets and the debtor’s capacity to perform any other requirements set out in the proposal.  Although receiving money is important to creditors it is equally important to stop wasting time and simply close out a file.