C.E. Craig & Associates Inc.

Corporate Bankruptcy vs Division 1 Proposal

Business Bankruptcy vs Division 1 Proposal to Creditors:

What’s the difference?

Deciding between a corporate bankruptcy vs Division 1 Proposal?  What do these different options mean?  Business owners who cannot pay debts as they come due, may find that their companies are insolvent. They will need to consider either filing a Business or Corporate Bankruptcy vs Division 1 Proposal to creditors. When a company is described as being insolvent, that generally means that it is not able to meet its day-to-day cash obligations and further, that if the company liquidated all its assets, it would not be able to pay off all its debts or obligations.

So, what options does a small business have when it is insolvent?

As a business owner focusing on the day-to-day management of your business, sometimes it becomes difficult to keep the wolves from the door. The demand for payments can become overwhelming, especially if there simply is not enough money available to pay all of your creditors!

You’re probably asking yourself:


  • Which creditors should I pay back first?
  • Do I pay each corporate creditor their full amount, one by one, or do I pay back just a portion to each of them?
  • What about my obligations to employees or to the CRA?
  • Can I pay family and friends back before I pay anyone else?
  • Can I continue to pay myself a salary when I owe so many creditors?
  • What about my shareholder’s loans? If my company owes me money, can I just pay myself before I pay any creditors?
  • If I can’t pay my employees, can I just give them some of the company assets to compensate them for their unpaid wages?


Accordingly, these are complicated issues and each situation is different. Every insolvency must be looked at on a case-by-case basis, which is why it is always best to seek professional advice to understand your options both as a company, and that as an individual Director or shareholder.  Furthermore, each business owner has to consider the options between Corporate Bankruptcy vs Division 1 Proposal and their individual consequences.

Main Consideration between Div 1 Proposal vs Corporate Bankruptcy

The first consideration a Licensed Insolvency Trustee, will have for you is:


  • Is the company a viable business? and/or
  • What changes need to be made to make the company viable

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In deciding which restructuring options you have, either a corporate bankruptcy or corporate restructuring plan (Division 1 Proposal), the first consideration is to the viability of your business.

Div 1 vs Corporate

Is the Company a Viable business?

Certainly, businesses may find that they are unable to pay their creditors in whole or in part.  Basically this may be due to lack of financing (access to additional funds) or a short-term cash flow issues. The core of the business may have a solid foundation, a sound business plan backed by committed and knowledgeable management, however, the company may be crippled by excessive debt loads. If the company has a solid business model, it may be worth restructuring the debt. Instead of filing for bankruptcy, these potentially viable businesses can file a Division 1 Proposal, which allows companies to shed some if its debts and other financial hindrances, thus giving the business a chance to become profitable again.

If your surplus income payments are an average of $100 or more based on the Superintendent’s Standards during the first 9 months of your bankruptcy, you are required to continue submitting monthly statements of income and expenses together with any payments for an additional 12 months. You will receive an automatic discharge after 21 months if you have submitted the monthly statements, paid all surplus income accumulated during the 21 months and complied with your duties as a bankrupt.

Division 1 Proposal – Benefits to the Debtor

A Division 1 Proposal under the Bankruptcy and Insolvency Act of Canada allows both companies and individuals a way of reducing their overall debt levels without necessarily going into bankruptcy.

Through filing a Division 1 Proposal, the debtor offers to pay back a portion of their unsecured debt over a period of time. However, if the unsecured creditors in a Division 1 Proposal reject the Proposal, the debtor is automatically assigned into Bankruptcy.

The goal of Division 1 Proposals is to keep eligible debtors out of bankruptcy.

In order to make a company viable by shedding some debt, some of the creditors will need to be willing to take less than full amount of what is owed to them. Under the Bankruptcy and Insolvency Act, each type of creditor is assigned a rank, and are afforded different rights depending on this individual ranking.

In order for a Div. 1 Proposal to be approved, 50% of the unsecured creditors who vote must vote to accept the Proposal AND those votes for acceptance must represent more than 66.6% of the dollars owing to the voting creditors. Additionally, the Court must also approve the Proposal.

The steps leading up to a Div. 1 Proposal’s acceptance and those following it are complex and multi-faceted. For details on the Div 1 Proposal process we recommend speaking directly with Colleen Craig, CA, CIRP of C.E. Craig & Associates., Licensed Insolvency Trustee. In Canada, only Licensed Insolvency Trustees can oversee a Proposal.

Some creditors, such as the CRA, can leapfrog over other creditor rights by registering their debts and giving themselves a better position in the scheme of distribution of funds. Once done, this can then limit the company’s ability to renegotiate with all creditors as a whole. In this situation, having a trustee appointed early in the process is helpful because once a Licensed Insolvency Trustee or bankruptcy trustee is appointed, it stops this behaviour and all creditors are “Stayed” (i.e. stopped) from beginning or continuing any other legal action against the entity. This is referred to as a “Stay of Proceedings”.

Division 1 Proposal – Powerful Tool to help a Business become Viable

Overall a Division 1 Proposal can help a company shed some debt, but it can also help with the following:


  • Cancel onerous or unprofitable contracts
  • Reduce Directors’ liabilities
  • Allow companies to renegotiate with Secured Creditors
  • Reduce or eliminate all unsecured debts including CRA corporate tax debt, GST and source deduction debts (payroll remittance debts subject to Deemed Trust provisions)
  • Provide mechanism for companies to get out of Commercial Tenancy Contracts or Leases (disclaim or resiliate commercial leases)

Because the filing of a Division1 Proposal (or Notice of Intention to File a Proposal) under the BIA immediately stops all collection actions including court actions against the debtor. This Stay of Proceeding is only temporary but will become permanent if the Proposal is approved by the creditors.

If a Division 1 Proposal is accepted and is completed successfully, then:


  • Unpaid portion of debts is no longer collectable by the creditors
  • The company has full use of its assets (subject to approval of secured creditors)
  • The company avoids bankruptcy
  • The company’s unsecured debts are paid at a reduced amount

Division 1 Proposal – Risks

Certainly, one of the biggest risks in filing a Division 1 Proposal is that of being immediately placed into Bankruptcy – which can happen if:


  • The unsecured creditors reject the Proposal, or
  • A portion of the Proposal is not completed as per the terms of the Proposal.


For businesses, filing a Division 1 Proposal requires additional focus and accounting work on such areas as:


  • Federal, Provincial and Municipal Tax liability;
  • Preparation of Projected Cash Flow Statements;
  • Employee retention and remuneration; and
  • Business client retention and attention to receivables.

Contact Us for Free Consultation

Finally, each situation is unique. If you are committed to working towards the viability of your company, we are here to assist you.
Colleen Craig and her staff have lived and worked in the Victoria area for over 16 years and are committed to providing accurate and personal service.

We offer a Free Consultation where we sit down with business owners experiencing financial difficulties to outline their options.
Please call C.E. Craig & Associates today for your Free Consultation at 250-386-8778

C.E. Craig & Associates Inc is a federally Licensed Insolvency Trustee.

The Federal Government under the Office of the Superintendent of Bankruptcy oversees the Canadian Insolvency Process and has advice for corporate debtors at https://www.canada.ca/en/services/business/bankruptcy.html

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Colleen Craig


Colleen founded C.E. Craig & Associates Inc. in 2003 after 10 years in the insolvency industry. As a federally licensed Trustee in Bankruptcy she deals with the day-to-day issues that creditors and debtors encounter when they are faced with Insolvency situations. As a Chartered Accountant, Colleen brings a pragmatic approach to dealing with the complex matters and finding the right solution for all parties.

Janet White


Janet has been with C.E. Craig & Associates Inc. since 2003, when the company opened. She helped build the practice from the ground up, giving her a thorough understanding of the ins and outs of insolvency legislation and procedures.

Lesley Bentley


We were pleased to welcome Lesley Bentley into our firm in 2013. She has been an Estate Administrator for over 30 years offering advice to individuals struggling with personal financial issues.

Badger the Dog


 No formal insolvency training, but also non judgmental, loyal, and cute.

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Reach out to a debt solutions manager today:




Reach out to a debt solutions manager today:







Reach out to a debt solutions manager today: