The Notice of Intention to Make a Proposal

The Bankruptcy and Insolvency Act (BIA) allows insolvent persons to benefit from a 30-day grace period to perform a financial restructuring.  This is commonly known as the “notice of intention to make a proposal” or “NOI”.  The filing of an NOI can only be done through a Licensed Insolvency Trustee (“LIT”).  An insolvent person can be an individual or a company.

Once the NOI has been filed, the insolvent person must immediately initiate a full analysis of their financial situation with an LIT. Usually before filing, the debtor has been in contact with the LIT to review their options.  A plan is then set up to enable them to offer a settlement for their creditors: the “proposal” as such.

During this period, apart from a few exceptions, all legal proceedings that have already been initiated against the debtor are automatically suspended and all legal proceedings even contemplated by the creditors cannot commence.

Within the first 10 days following the filing of the NOI, the debtor must file a projected cash-flow statement that needs to be signed off by the LIT. These projections will enable the LIT to assess the viability of the debtor and to determine whether a proposal is indeed the right course of action.

Should they consider that the restructuring will require more time than expected, the debtor may request one or more extension(s) from the Court. This application must be supported by the LIT.

The LIT’s main role is to monitor the debtors operations during this period. He is also charged to provide his help and expertise to avoid their bankruptcy.

The BIA allows insolvent persons to have access to useful and necessary means to help companies survive.

  • First-ranking interim financing (DIP financing)This solution may be considered by insolvent persons who are experiencing an immediate lack of cash. Debtor-in-possession (DIP) financing can be provided with Court approval. Typically, the interim financing would have priority over any secured creditor’s claims.
  • Disclaimer of agreementsIt is possible, with the agreement of the Licensed Insolvency Trustee to disclaim agreements signed before the filing of the NOI. This notice must have been filed to the concerned parties in the prescribed form.
  • Disclaimer of a commercial leaseAt any time between the filing of the NOI and the filing of a proposal, the insolvent persons who is a party to a commercial lease may disclaim the lease. A 30-day notice will have to be given to the lessor in the prescribed form.

Even though the disclaiming of agreements and commercial leases is authorized under the BIA, insolvent persons may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a Court.

It sometimes appears during a restructuring that a part of the company’s assets must be sold to maximize their realizable value. A request to do so must then be made to the court, which will accept it if the conditions specified in the BIA are met.

The restructuring of a company’s operations is essential to ensure its survival. The LIT and the insolvent person will work together as soon as the NOI has been filed.

The Proposal itself

The proposal represents an offer made by the debtor to their creditors in order to settle the amounts they owe them.  The BIA is fairly flexible as to how a proposal is structured and it leaves room for negotiation between the parties. It may consist of a lump sum, or of monthly payments spread over a long period or a combination of both.

The proposal can also protect company Directors and Officers regarding some of their obligations that may arise as a result of the filing of the NOI.  It is however worth mentioning that nothing protects them in the case of a secured creditor.

A proposal must always include some essential elements:

  • The full amount of the deductions at source that are owed must be paid within the 6-month period following the acceptance of the proposal by the Court.
  • The payment, immediately after the acceptance of the proposal, of the wages of the employees, including their vacation pay, to the extent of $2 000 per employee.

Vote on the Proposal

A meeting of creditors is held within the 21-day period following the filing of the proposal. The creditors then indicate their preference by voting either in person or by letter.

To be approved, the proposal must be accepted by the majority of the creditors (50% + 1) and the voting creditors must additionally hold 2/3 of the total value of the amounts due.  In order for the proposal to be accepted, both voting thresholds must be attained.

Upon the acceptance of the proposal by the creditors, it must, as a final step, be approved by the Court. On the other hand, if it has been refused, the insolvent persons are deemed to have made an assignment in bankruptcy.

It is never too late to meet with an LIT in order to make some arrangement to pay back your debt.

If you are at the head of a company facing financial difficulties, you should know that you have many options to deal with debt. The notice of intention and the proposal represent only two of the numerous solutions we can offer you. So do not hesitate to contact John McEown at Boale, Wood & Company Ltd., Licensed Insolvency Trustee. (604) 605-3335 or