Options for the Business Debtor

If the business is experiencing financial difficulty, there are two basic options: restructuring or liquidation.


A restructuring is appropriate when there is an opportunity to return the business to profitability and/or obtain new equity. A restructuring can allow the business to:

  • Reschedule secured creditor payments.
  • Terminate onerous supply or delivery contacts.
  • Terminate property leases.
  • Reduce excessive unsecured debt and/or defer the payment of the debt.
  • Liquidate surplus assets in an orderly manner.
  • Stop legal proceedings by creditors.

The restructuring process is undertaken by the owners and management of the business and, generally, they stay in full possession and control of the business throughout the process. It can be formal or informal. A formal restructuring can be accomplished by filing a proposal under the Bankruptcy and Insolvency Act or a Plan of Arrangement under the Companies' Creditors Arrangement Act. Key features of formal restructuring is virtually all creditor actions are stayed and you do not need unanimous creditor approval in order to successfully complete the restructuring.

An informal restructuring will usually be a viable alternative if there are only a few significant creditors. The informal restructuring is accomplished simply through negotiation with each individual creditor. It is necessary that 100% of the creditors are in agreement with the offer and then a written agreement is entered into with each creditor in order to bind them to the restructuring terms.

Management can negotiate the settlement directly with the creditors, however, it is often useful to seek the advice and assistance of an insolvency professional.


If there are more than a few creditors, an efficient debt-restructuring alternative is a proposal under the Bankruptcy and Insolvency Act because a proposal is binding on all creditors (even dissenting creditors) as long as the requisite majority approve. After the proposal is filed, there is a meeting of creditors to vote on the proposal. If more than fifty percent of the creditors by head count and two-thirds (66 2/3%) of the creditors by dollar-value vote in favour of the terms of the proposal, then the proposal will be binding on all of the business's unsecured creditors.

If the business needs immediate relief from the pressure of unpaid creditors, it can file a "Notice of Intention". This imposes an immediate "stay of proceedings" as against all creditors and gives time to the business to formulate a plan or proposal to the business creditors.

A proposal must be filed with a Licensed Insolvency Trustee. The Trustee assists in the preparation of the proposal, meets with the creditors, monitors the affairs of the business and disburses the funds to the creditors.

Restructuring under the Companies’ Creditors Arrangement Act (the "CCAA") is effected by the filing of a "Plan of Arrangement". This is similar to a proposal in that it is focused on reducing or deferring debt. However, it is available only for corporate debtors that owe at least $5 million and it requires more Court involvement than a proposal.

The CCAA process can become expensive for both the company and its creditors as legal counsel must be engaged to present arguments and address the Court’s concerns. On the positive side, however, it is a less structured process than a proposal and can allow for more flexibility in the restructuring itself. The added flexibility provided in terms of restructuring shareholdings, contracts and other facets of the business, makes it more appealing than a proposal in some cases.


If there is little prospect of financial viability or the owners do not wish to preserve the business, then the business assets should be liquidated and the proceeds distributed to the creditors in a structured manner. This can be accomplished in a number of ways.

If there is one large secured creditor, it will likely want to control the process and will typically appoint a Receiver. It may also wish to bankrupt the business in order to subordinate certain government claims and thus improve its recovery. The Receiver has the option of selling the assets piece-meal or en-bloc.

The owners/management of the business may find it desirable to control the liquidation process in order to maximize values and attempt to reduce the claims that may be made against directors and guarantors. In this situation, a liquidating proposal filed under the Bankruptcy and Insolvency Act or similarly a Plan of Arrangement under the Companies' Creditors Arrangement Act may be an appropriate means of liquidation provided the creditors vote to accept the proposal or Plan of Arrangement.