A corporate proposal is filed with the intent of restructuring the debt of a company and allowing the company to continue in productive existence. Any corporation that is unable to pay its debts as they become due, or that has assets, which at fair value are insufficient to discharge all of its liabilities, can file a proposal.
It is necessary to have a Licensed Insolvency Trustee involved with the corporate proposal. The Trustee will generally assist the company in the formulation and filing of the proposal and dealing with creditors. In a proposal, the company remains in control and possession of its assets pending acceptance or rejection of the proposal. However, the Trustee must monitor the operations of the company up to the time of the vote on the proposal.
Terms of a Corporate Proposal
The terms of a corporate proposal can be as creative as required in the circumstances but generally are focused on an extension of payment terms and/or settlement of debts at less than full value. The actual formulation of the terms of a corporate proposal can take some time; the business must be analyzed to determine if all or only some parts of it should continue, whether equity investment or new financing is required, and the position of secured and unsecured creditors, among other matters.
Notice of Intention
In order to provide some relief from creditors actions, and time to formulate a proposal, a company can file a Notice of Intention to Make a Proposal (NOI) prior to actually filing a proposal.
Once filed, there is an immediate stay of proceedings and no creditor (secured or unsecured) can take or continue any action against the company without first seeking leave of the court. This stay of proceedings is for an initial 30-day period and allows time for the company to stabilize its operations, assess its restructuring options and formulate a proposal. Good to know! If the initial 30-day stay period is not sufficient, it is possible to apply to the Court for one or more extensions of time of up to 45 days each, but the total stay period cannot exceed 6 months, and creditors may oppose the requests for extension in court.