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Understanding a Division I Proposal

Corporate insolvency does not necessarily lead to bankruptcy. There are other options that may be explored to restructure the business and keep it alive. One such option is a Proposal under the Bankruptcy and Insolvency Act.

There are many reasons why this approach could be advantageous to a business as well as its creditors. First and foremost it provides a company with the opportunity to address financial issues and continue in business, avoiding the need for bankruptcy. For the business, such a proposal gives the opportunity to repay only a portion of its debts, including tax liabilities.

Such a proposal may also include an extension of the period of time during which the debt may be repaid.

Another advantage to such a proposal is the automatic stay of proceedings: while the proposal is in process, no creditors can commence or continue any actions against the business including seizures or wage garnishments, and the business is able to in possession of its assets.

To be successful, the proposal has to be approved by at least 50 per cent of the creditors, holding at least 2/3 of the dollar value of all debts. The process must be overseen by a licenced trustee in bankruptcy.

Whether a Division I Proposal or another approach will be best depends on the specific situation of the business. A lawyer who understands commercial bankruptcy can help to make this determination.

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