In Ontario, filing a Division I Corporate Proposal to restructure business debt typically involves Licensed Insolvency Trustee (LIT) and legal fees ranging from $10,000 to $30,000+ CAD. This process instantly stops creditor actions, including Canada Revenue Agency (CRA) wage garnishments, allowing your business to survive and avoid bankruptcy.
When an Ontario business faces overwhelming debt but still has a viable underlying operational model, closing the doors through bankruptcy is not the only option. A Division I Corporate Proposal, governed by the federal Bankruptcy and Insolvency Act (BIA), allows a struggling corporation to formally renegotiate its debts with creditors.
Whether your corporate headquarters are in Toronto, Ottawa, or a manufacturing hub like Windsor, a Corporate Proposal allows you to consolidate debts, halt aggressive collection actions, and settle for a fraction of what is owed. 📍 Crucially, it provides immediate relief from severe collection measures initiated by the Canada Revenue Agency (CRA) or aggressive commercial suppliers. However, executing a successful proposal requires navigating complex federal regulations alongside skilled Licensed Insolvency Trustees (LITs) and corporate insolvency lawyers. This guide outlines the costs, timelines, and step-by-step procedures for Ontario businesses considering this powerful restructuring tool.
Step-by-Step Process in Ontario and Canada
Because the BIA is federal legislation, the procedural framework applies uniformly across Canada. However, court approvals and specific filings in Ontario are handled through the Ontario Superior Court of Justice (Commercial List in major cities like Toronto).
Step 1: Initial Consultation with a Licensed Insolvency Trustee
The first mandatory step is engaging a Licensed Insolvency Trustee (LIT). In Canada, only an LIT licensed by the Office of the Superintendent of Bankruptcy (OSB) can administer a Division I Proposal. 👨💼 During the initial consultation, the LIT will review your corporation’s financial statements, cash flow projections, and creditor list to determine if a Corporate Proposal is financially viable compared to immediate bankruptcy or receivership.
Step 2: Filing a Notice of Intention (NOI)
If time is of the essence-for instance, if the CRA has frozen your corporate bank accounts-the LIT will swiftly file a Notice of Intention to Make a Proposal (NOI). Filing an NOI immediately triggers a federal “Stay of Proceedings.” This legal shield instantly stops all unsecured creditors from pursuing collections, lawsuits, or garnishments. It gives the corporation a breathing period of 30 days to formulate a comprehensive restructuring plan.
Step 3: Drafting the Corporate Proposal
During the stay period, your business management, alongside the LIT and your corporate lawyer, will draft the actual proposal. 📝 The proposal outlines exactly how much creditors will be paid, the payment schedule (which can last up to five years), and any operational restructuring the company will undertake. The goal is to offer creditors a better return than they would receive in a hypothetical bankruptcy scenario.
Step 4: The Meeting of Creditors and Voting
Once the proposal is filed, the LIT will call a formal meeting of creditors. For the proposal to be legally binding, it must be accepted by a dual majority: a majority in the number of voting creditors, and two-thirds (66.6%) of the total dollar value of the debt represented at the meeting. If the CRA is your largest creditor, their vote will heavily influence the outcome. If the creditors vote “no,” the corporation is immediately and automatically placed into bankruptcy.
Step 5: Court Approval at the Superior Court of Justice
If the creditors accept the proposal, the LIT must present it to the Ontario Superior Court of Justice for final approval. The judge will evaluate whether the terms are reasonable and fair to all parties. Once the court approves the proposal, it becomes binding on all unsecured creditors, even those who voted against it. Your business then executes the payment plan over the agreed timeline.
How Much Does it Cost in Ontario?
Restructuring a corporation is a highly specialized legal and financial process. The costs are substantial but are generally funded from the cash flow generated during the stay of proceedings, as the company stops paying its historical unsecured debts.
| Cost Category | Estimated Fees (CAD) | Details and Factors |
|---|---|---|
| Official Receiver Filing Fees | $150 – $500 | Mandatory government fees paid to the Office of the Superintendent of Bankruptcy (OSB) upon filing the NOI and the Proposal. |
| Licensed Insolvency Trustee (LIT) Fees | $10,000 – $30,000+ | Billed at an hourly rate or as a fixed tariff. Costs scale heavily based on the complexity of the business, the number of creditors, and cash flow monitoring duties. |
| Independent Corporate Legal Counsel | $5,000 – $20,000+ | You will need an Ontario insolvency lawyer to represent the company’s directors, draft complex legal motions, and advise on director liability. |
| Appraisals and Consultants | $2,000 – $5,000 | Independent appraisals of commercial equipment or real estate are often required to prove to creditors that the proposal is better than bankruptcy. |
It is important to note that the directors of the corporation may need to provide an upfront monetary retainer to the LIT and the law firm before the NOI is filed. 💵 Ensure you receive a clear, written fee agreement from your chosen insolvency professionals before proceeding.
How Long Does the Process Take?
The timeline for a Division I Proposal is dictated by strict statutory deadlines under the BIA to ensure creditors are not kept waiting indefinitely.
- Initial Stay of Proceedings (NOI): Filing the NOI grants an initial 30-day stay.
- NOI Extensions: If more time is needed to draft the proposal or negotiate with lenders, the corporation can apply to the Ontario Superior Court of Justice for extensions of up to 45 days at a time, up to a maximum total of 6 months from the initial filing.
- Proposal Execution: Once approved by the court, the repayment terms of the proposal itself can span anywhere from a few months up to a maximum of 5 years.
Frequently Asked Questions (FAQ)
Will a Corporate Proposal stop the CRA from freezing my bank account?
Yes. The moment your Licensed Insolvency Trustee files a Notice of Intention (NOI) or the Proposal itself, a federal Stay of Proceedings is enacted. This legally forces the CRA and all other unsecured creditors to immediately halt wage garnishments, bank account freezes, and collection lawsuits.
What happens if the creditors vote against the Proposal?
If the required majority of creditors reject the Corporate Proposal at the meeting, or if the court refuses to approve it, the corporation is deemed to have automatically filed for bankruptcy. The LIT will then transition to liquidating the company’s assets to pay creditors.
Can a proposal include secured creditors like my commercial mortgage lender?
Generally, a Division I Proposal is designed to restructure unsecured debt (like suppliers, credit cards, and CRA arrears). Secured creditors (like a bank holding a mortgage on your warehouse) are usually excluded from the proposal process and retain their right to realize on their security unless they specifically agree to be included.
Is an LIT the same as a lawyer?
No. A Licensed Insolvency Trustee (LIT) is a federally regulated professional (often an accountant) who acts as an impartial officer of the court to administer the proposal. They do not represent the corporation exclusively. You will also need to hire an independent corporate insolvency lawyer to advocate strictly for the legal interests of the business and its directors.
Are the directors personally protected by a Corporate Proposal?
A Corporate Proposal protects the corporation, but directors can still be held personally liable for certain corporate debts, such as unpaid employee wages, unremitted HST, and unremitted source deductions to the CRA. However, a well-structured proposal can be designed to prioritize settling these specific debts to mitigate personal liability for the directors.
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