Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3)

PART IIIProposals

DIVISION IGeneral Scheme for Proposals

Marginal note:Who may make a proposal

• 50 (1) Subject to subsection (1.1), a proposal may be made by

  • (a) an insolvent person;

  • (b) a receiver, within the meaning of subsection 243(2), but only in relation to an insolvent person;

  • (c) a liquidator of an insolvent person’s property;

  • (d) a bankrupt; and

  • (e) a trustee of the estate of a bankrupt.

• Marginal note:Where proposal may not be made

  (1.1) A proposal may not be made under this Division with respect to a debtor in respect of whom a consumer proposal has been filed under Division II until the administrator under the consumer proposal has been discharged.

• Marginal note:To whom proposal made

  (1.2) A proposal must be made to the creditors generally, either as a mass or separated into classes as provided in the proposal, and may also be made to secured creditors in respect of any class or classes of secured claim, subject to subsection (1.3).

• Marginal note:Idem

  (1.3) Where a proposal is made to one or more secured creditors in respect of secured claims of a particular class, the proposal must be made to all secured creditors in respect of secured claims of that class.

• Marginal note:Classes of secured claims

  (1.4) Secured claims may be included in the same class if the interests or rights of the creditors holding those claims are sufficiently similar to give them a commonality of interest, taking into account

  • (a) the nature of the debts giving rise to the claims;

  • (b) the nature and rank of the security in respect of the claims;

  • (c) the remedies available to the creditors in the absence of the proposal, and the extent to which the creditors would recover their claims by exercising those remedies;

  • (d) the treatment of the claims under the proposal, and the extent to which the claims would be paid under the proposal; and

  • (e) such further criteria, consistent with those set out in paragraphs (a) to (d), as are prescribed.

• Marginal note:Court may determine classes

  (1.5) The court may, on application made at any time after a notice of intention or a proposal is filed, determine, in accordance with subsection (1.4), the classes of secured claims appropriate to a proposal, and the class into which any particular secured claim falls.

• Marginal note:Creditors’ response

  (1.6) Subject to section 50.1 as regards included secured creditors, any creditor may respond to the proposal as made to the creditors generally, by filing with the trustee a proof of claim in the manner provided for in

  • (a) sections 124 to 126, in the case of unsecured creditors; or

  • (b) sections 124 to 134, in the case of secured creditors.

• Marginal note:Effect of filing proof of claim

  (1.7) Hereinafter in this Division, a reference to an unsecured creditor shall be deemed to include a secured creditor who has filed a proof of claim under subsection (1.6), and a reference to an unsecured claim shall be deemed to include that secured creditor’s claim.

• Marginal note:Voting

  (1.8) All questions relating to a proposal, except the question of accepting or refusing the proposal, shall be decided by ordinary resolution of the creditors to whom the proposal was made.

• Marginal note:Documents to be filed

  (2) Subject to section 50.4, proceedings for a proposal shall be commenced, in the case of an insolvent person, by filing with a licensed trustee, and in the case of a bankrupt, by filing with the trustee of the estate,

  • (a) a copy of the proposal in writing setting out the terms of the proposal and the particulars of any securities or sureties proposed, signed by the person making the proposal and the proposed sureties if any; and

  • (b) the prescribed statement of affairs.

• Marginal note:Filing of documents with the official receiver

  (2.1) Copies of the documents referred to in subsection (2) must, at the time the proposal is filed under subsection 62(1), also be filed by the trustee with the official receiver in the locality of the debtor.

• Marginal note:Approval of inspectors

  (3) A proposal made in respect of a bankrupt shall be approved by the inspectors before any further action is taken thereon.

• Marginal note:Proposal, etc., not to be withdrawn

  (4) No proposal or any security, guarantee or suretyship tendered with the proposal may be withdrawn pending the decision of the creditors and the court.

• Marginal note:Assignment not prevented

  (4.1) Subsection (4) shall not be construed as preventing an insolvent person in respect of whom a proposal has been made from subsequently making an assignment.

• Marginal note:Duties of trustee

  (5) The trustee shall make or cause to be made such an appraisal and investigation of the affairs and property of the debtor as to enable the trustee to estimate with reasonable accuracy the financial situation of the debtor and the cause of the debtor’s financial difficulties or insolvency and report the result thereof to the meeting of the creditors.

• Marginal note:Trustee to file cash-flow statement

  (6) The trustee shall, when filing a proposal under subsection 62(1) in respect of an insolvent person, file with the proposal

  • (a) a statement — or a revised cash-flow statement if a cash-flow statement had previously been filed under subsection 50.4(2) in respect of that insolvent person — (in this section referred to as a “cash-flow statement”) indicating the projected cash-flow of the insolvent person on at least a monthly basis, prepared by the person making the proposal, reviewed for its reasonableness by the trustee and signed by the trustee and the person making the proposal;

  • (b) a report on the reasonableness of the cash-flow statement, in the prescribed form, prepared and signed by the trustee; and

  • (c) a report containing prescribed representations by the person making the proposal regarding the preparation of the cash-flow statement, in the prescribed form, prepared and signed by the person making the proposal.

• Marginal note:Creditors may obtain statement

  (7) Subject to subsection (8), any creditor may obtain a copy of the cash-flow statement on request made to the trustee.

• Marginal note:Exception

  (8) The court may order that a cash-flow statement or any part thereof not be released to some or all of the creditors pursuant to subsection (7) where it is satisfied that

  • (a) such release would unduly prejudice the insolvent person; and

  • (b) non-release would not unduly prejudice the creditor or creditors in question.

• Marginal note:Trustee protected

  (9) If the trustee acts in good faith and takes reasonable care in reviewing the cash-flow statement, he is not liable for loss or damage to any person resulting from that person’s reliance on the cash-flow statement.

• Marginal note:Trustee to monitor and report

  (10) Subject to any direction of the court under paragraph 47.1(2)(a), the trustee under a proposal in respect of an insolvent person shall, for the purpose of monitoring the insolvent person’s business and financial affairs, have access to and examine the insolvent person’s property, including his premises, books, records and other financial documents, to the extent necessary to adequately assess the insolvent person’s business and financial affairs, from the filing of the proposal until the proposal is approved by the court or the insolvent person becomes bankrupt, and shall

  • (a) file a report on the state of the insolvent person’s business and financial affairs — containing the prescribed information, if any —

    • (i) with the official receiver without delay after ascertaining a material adverse change in the insolvent person’s projected cash-flow or financial circumstances, and

    • (ii) with the court at any time that the court may order;

  • (a.1) send a report about the material adverse change to the creditors without delay after ascertaining the change; and

  • (b) send, in the prescribed manner, a report on the state of the insolvent person’s business and financial affairs — containing the trustee’s opinion as to the reasonableness of a decision, if any, to include in a proposal a provision that sections 95 to 101 do not apply in respect of the proposal and containing the prescribed information, if any — to the creditors and the official receiver at least 10 days before the day on which the meeting of creditors referred to in subsection 51(1) is to be held.

• Marginal note:Report to creditors

  (11) An interim receiver who has been directed under subsection 47.1(2) to carry out the duties set out in subsection (10) in substitution for the trustee shall deliver a report on the state of the insolvent person’s business and financial affairs, containing any prescribed information, to the trustee at least fifteen days before the meeting of creditors referred to in subsection 51(1), and the trustee shall send the report to the creditors and the official receiver, in the prescribed manner, at least ten days before the meeting of creditors referred to in that subsection.

• Marginal note:Court may declare proposal as deemed refused by creditors

  (12) The court may, on application by the trustee, the interim receiver, if any, appointed under section 47.1 or a creditor, at any time before the meeting of creditors, declare that the proposal is deemed to have been refused by the creditors if the court is satisfied that

  • (a) the debtor has not acted, or is not acting, in good faith and with due diligence;

  • (b) the proposal will not likely be accepted by the creditors; or

  • (c) the creditors as a whole would be materially prejudiced if the application under this subsection is rejected.

• Marginal note:Effect of declaration

  (12.1) If the court declares that the proposal is deemed to have been refused by the creditors, paragraphs 57(a) to (c) apply.

• Marginal note:Claims against directors — compromise

  (13) A proposal made in respect of a corporation may include in its terms provision for the compromise of claims against directors of the corporation that arose before the commencement of proceedings under this Act and that relate to the obligations of the corporation where the directors are by law liable in their capacity as directors for the payment of such obligations.

• Marginal note:Exception

  (14) A provision for the compromise of claims against directors may not include claims that

  • (a) relate to contractual rights of one or more creditors arising from contracts with one or more directors; or

  • (b) are based on allegations of misrepresentation made by directors to creditors or of wrongful or oppressive conduct by directors.

• Marginal note:Powers of court

  (15) The court may declare that a claim against directors shall not be compromised if it is satisfied that the compromise would not be just and equitable in the circumstances.

• Marginal note:Application of other provisions

  (16) Subsection 62(2) and section 122 apply, with such modifications as the circumstances require, in respect of claims against directors compromised under a proposal of a debtor corporation.

• Marginal note:Determination of classes of claims

  (17) The court, on application made at any time after a proposal is filed, may determine the classes of claims of claimants against directors and the class into which any particular claimant’s claim falls.

• Marginal note:Resignation or removal of directors

  (18) Where all of the directors have resigned or have been removed by the shareholders without replacement, any person who manages or supervises the management of the business and affairs of the corporation shall be deemed to be a director for the purposes of this section.

Marginal note:Secured creditor may file proof of secured claim

• 50.1 (1) Subject to subsections (2) to (4), a secured creditor to whom a proposal has been made in respect of a particular secured claim may respond to the proposal by filing with the trustee a proof of secured claim in the prescribed form, and may vote, on all questions relating to the proposal, in respect of that entire claim, and sections 124 to 126 apply, in so far as they are applicable, with such modifications as the circumstances require, to proofs of secured claim.

• Marginal note:Proposed assessed value

  (2) Where a proposal made to a secured creditor in respect of a claim includes a proposed assessed value of the security in respect of the claim, the secured creditor may file with the trustee a proof of secured claim in the prescribed form, and may vote as a secured creditor on all questions relating to the proposal in respect of an amount equal to the lesser of

  • (a) the amount of the claim, and

  • (b) the proposed assessed value of the security.

• Marginal note:Idem

  (3) Where the proposed assessed value is less than the amount of the secured creditor’s claim, the secured creditor may file with the trustee a proof of claim in the prescribed form, and may vote as an unsecured creditor on all questions relating to the proposal in respect of an amount equal to the difference between the amount of the claim and the proposed assessed value.

• Marginal note:Idem

  (4) Where a secured creditor is dissatisfied with the proposed assessed value of his security, the secured creditor may apply to the court, within fifteen days after the proposal is sent to the creditors, to have the proposed assessed value revised, and the court may revise the proposed assessed value, in which case the revised value henceforth applies for the purposes of this Part.

• Marginal note:Where no secured creditor in a class takes action

  (5) Where no secured creditor having a secured claim of a particular class files a proof of secured claim at or before the meeting of creditors, the secured creditors having claims of that class shall be deemed to have voted for the refusal of the proposal.

Marginal note:Excluded secured creditor

50.2 A secured creditor to whom a proposal has not been made in respect of a particular secured claim may not file a proof of secured claim in respect of that claim.

Marginal note:Rights in bankruptcy

50.3 On the bankruptcy of an insolvent person who made a proposal to one or more secured creditors in respect of secured claims, any proof of secured claim filed pursuant to section 50.1 ceases to be valid or effective, and sections 112 and 127 to 134 apply in respect of a proof of claim filed by any secured creditor in the bankruptcy.

Marginal note:Notice of intention

• 50.4 (1) Before filing a copy of a proposal with a licensed trustee, an insolvent person may file a notice of intention, in the prescribed form, with the official receiver in the insolvent person’s locality, stating

  • (a) the insolvent person’s intention to make a proposal,

  • (b) the name and address of the licensed trustee who has consented, in writing, to act as the trustee under the proposal, and

  • (c) the names of the creditors with claims amounting to two hundred and fifty dollars or more and the amounts of their claims as known or shown by the debtor’s books,

  and attaching thereto a copy of the consent referred to in paragraph (b).

• Marginal note:Certain things to be filed

  (2) Within ten days after filing a notice of intention under subsection (1), the insolvent person shall file with the official receiver

  • (a) a statement (in this section referred to as a “cash-flow statement”) indicating the projected cash-flow of the insolvent person on at least a monthly basis, prepared by the insolvent person, reviewed for its reasonableness by the trustee under the notice of intention and signed by the trustee and the insolvent person;

  • (b) a report on the reasonableness of the cash-flow statement, in the prescribed form, prepared and signed by the trustee; and

  • (c) a report containing prescribed representations by the insolvent person regarding the preparation of the cash-flow statement, in the prescribed form, prepared and signed by the insolvent person.

• Marginal note:Creditors may obtain statement

  (3) Subject to subsection (4), any creditor may obtain a copy of the cash-flow statement on request made to the trustee.

• Marginal note:Exception

  (4) The court may order that a cash-flow statement or any part thereof not be released to some or all of the creditors pursuant to subsection (3) where it is satisfied that

  • (a) such release would unduly prejudice the insolvent person; and

  • (b) non-release would not unduly prejudice the creditor or creditors in question.

• Marginal note:Trustee protected

  (5) If the trustee acts in good faith and takes reasonable care in reviewing the cash-flow statement, the trustee is not liable for loss or damage to any person resulting from that person’s reliance on the cash-flow statement.

• Marginal note:Trustee to notify creditors

  (6) Within five days after the filing of a notice of intention under subsection (1), the trustee named in the notice shall send to every known creditor, in the prescribed manner, a copy of the notice including all of the information referred to in paragraphs (1)(a) to (c).

• Marginal note:Trustee to monitor and report

  (7) Subject to any direction of the court under paragraph 47.1(2)(a), the trustee under a notice of intention in respect of an insolvent person

  • (a) shall, for the purpose of monitoring the insolvent person’s business and financial affairs, have access to and examine the insolvent person’s property, including his premises, books, records and other financial documents, to the extent necessary to adequately assess the insolvent person’s business and financial affairs, from the filing of the notice of intention until a proposal is filed or the insolvent person becomes bankrupt;

  • (b) shall file a report on the state of the insolvent person’s business and financial affairs — containing the prescribed information, if any —

    • (i) with the official receiver without delay after ascertaining a material adverse change in the insolvent person’s projected cash-flow or financial circumstances, and

    • (ii) with the court at or before the hearing by the court of any application under subsection (9) and at any other time that the court may order; and

  • (c) shall send a report about the material adverse change to the creditors without delay after ascertaining the change.

• Marginal note:Where assignment deemed to have been made

  (8) Where an insolvent person fails to comply with subsection (2), or where the trustee fails to file a proposal with the official receiver under subsection 62(1) within a period of thirty days after the day the notice of intention was filed under subsection (1), or within any extension of that period granted under subsection (9),

  • (a) the insolvent person is, on the expiration of that period or that extension, as the case may be, deemed to have thereupon made an assignment;

  • (b) the trustee shall, without delay, file with the official receiver, in the prescribed form, a report of the deemed assignment;

  • (b.1) the official receiver shall issue a certificate of assignment, in the prescribed form, which has the same effect for the purposes of this Act as an assignment filed under section 49; and

  • (c) the trustee shall, within five days after the day the certificate mentioned in paragraph (b.1) is issued, send notice of the meeting of creditors under section 102, at which meeting the creditors may by ordinary resolution, notwithstanding section 14, affirm the appointment of the trustee or appoint another licensed trustee in lieu of that trustee.

• Marginal note:Extension of time for filing proposal

  (9) The insolvent person may, before the expiry of the 30-day period referred to in subsection (8) or of any extension granted under this subsection, apply to the court for an extension, or further extension, as the case may be, of that period, and the court, on notice to any interested persons that the court may direct, may grant the extensions, not exceeding 45 days for any individual extension and not exceeding in the aggregate five months after the expiry of the 30-day period referred to in subsection (8), if satisfied on each application that

  • (a) the insolvent person has acted, and is acting, in good faith and with due diligence;

  • (b) the insolvent person would likely be able to make a viable proposal if the extension being applied for were granted; and

  • (c) no creditor would be materially prejudiced if the extension being applied for were granted.

• Marginal note:Court may not extend time

  (10) Subsection 187(11) does not apply in respect of time limitations imposed by subsection (9).

• Marginal note:Court may terminate period for making proposal

  (11) The court may, on application by the trustee, the interim receiver, if any, appointed under section 47.1, or a creditor, declare terminated, before its actual expiration, the thirty day period mentioned in subsection (8) or any extension thereof granted under subsection (9) if the court is satisfied that

  • (a) the insolvent person has not acted, or is not acting, in good faith and with due diligence,

  • (b) the insolvent person will not likely be able to make a viable proposal before the expiration of the period in question,

  • (c) the insolvent person will not likely be able to make a proposal, before the expiration of the period in question, that will be accepted by the creditors, or

  • (d) the creditors as a whole would be materially prejudiced were the application under this subsection rejected,

  and where the court declares the period in question terminated, paragraphs (8)(a) to (c) thereupon apply as if that period had expired.