Proposal to creditors (BIA proposal)

A buyer may meet a proposal when a seller is restructuring its debts. The Office of the Superintendent of Bankruptcy says proposals help resolve the financial difficulties of a business, and that if unsecured creditors refuse a division I proposal, the insolvent person is deemed to have made an assignment in bankruptcy. Subject to s. 50(1.1), under s. 50(1), a proposal may be made by an insolvent person, a receiver, a liquidator of the insolvent person’s property, a bankrupt, or the trustee of a bankrupt’s estate.

How a proposal moves

• It is made to creditors generally, as a mass or in classes, and may also be made to secured creditors (s. 50(1.2), subject to s. 50(1.3)).
• Creditors vote by class, and it is deemed accepted if, and only if, every class of unsecured creditors, other than (unless the court orders otherwise) a class with equity claims, votes for it by the majority the Act sets (s. 54(2)).
• After acceptance, the trustee applies for a court hearing (s. 58). The court must refuse approval if the terms are not reasonable or not calculated to benefit the general body of creditors (s. 59(2)), and ss. 59(3) and 60 add further conditions.
• Once accepted and approved, it binds all unsecured claims, and the secured claims it was made for in classes that voted to accept (s. 62(2), subject to s. 62(2.1)).

What to check

Search the insolvency records to see whether a proposal or notice of intention has been filed, and ask which assets the proposal covers. See buying from a trustee versus a receiver. The BIA is federal.