Bankruptcy and Insolvency
By: Janis Sarra, B.A., M.A., LL.B., LL.M., S.J.D
Updated by Frank Spizzirri, B.A., LL.B., LL.M., C.S.
Click HERE to access the CED and the Canadian Abridgment titles for this excerpt on westlaw Canada
XI.3: Consumer Proposals
XI.3(a): General
See Canadian Abridgment: BKY.VI.9 Bankruptcy and insolvency | Proposal | Consumer proposals
Consumer proposals are dealt with under Part III, Division II of the BIA. The BIA provides a summary method, available to eligible small individual debtors, allowing them to submit an arrangement to their creditors for the settlement, reduction or extension of claims.1
The purpose of the consumer proposal sections is to permit consumer proposals to be handled quickly, efficiently and with a minimum of administration and attendant expense. Negotiations, correspondence and discussion must be carried on within a very narrow time frame.2
XI.3(b): Availability
See Canadian Abridgment: BKY.VI.9 Bankruptcy and insolvency | Proposal | Consumer proposals
A natural person who is bankrupt or insolvent and who owes $250,000 or less, excluding debts owing on mortgages on the person's principal residence, may make a consumer proposal.1 Such a person is called a "consumer debtor".2 The definition of "consumer debtor" was amended to increase the amount of debts that an individual may have to be eligible to make a Part III, Division II consumer proposal from the previous amount of $75,000 to $250,000 in 2009.3 The prior indebtedness ceiling of $75,000 had not been increased since it was introduced in 1992 and resulted in many self-employed individuals and higher-income debtors having to make a more costly and more complicated Part III, Division I proposal, in turn, reducing recovery for creditors.4 The increase in the indebtedness ceiling is aimed at making the simpler and more cost-effective consumer proposal scheme available to a greater number of people.5
The individual consumer debtor's proposal must provide for payment of administration fees, including counselling fees.6
The proposal, when accepted by the creditors and approved by the court, is binding on and effective against unsecured creditors and participating secured creditors.7
An accepted, approved and binding proposal does not release the consumer debtor from debts such as those arising from fines, penalties, fraud, alimony and maintenance court orders, nor are co-signatories to the insolvent's debts released.8
The BIA prevents and prohibits creditors and persons from terminating ongoing agreements with the consumer debtor, dismissing employees or terminating employment, or enforcing wage assignments, on the sole ground that the debtor has made a consumer proposal.9
Two consumer proposals may be dealt with in one consumer proposal where the debts of the individuals making the joint proposal are substantially the same, and the administrator is of the opinion that it is in the best interests of the debtors and the creditors to permit the making of a joint proposal. This will ordinarily be done where a husband and wife are making a consumer proposal. In a joint filing, only one statement of receipts and disbursements is required, and the remuneration of the administrator is the same as if there had been only one debtor who filed a consumer proposal.10
An administrator is not to file a consumer proposal if it has reason to believe that the debtor is not eligible to make such a proposal.11
XI.3(c): Proposal
See Canadian Abridgment: BKY.VI.9 Bankruptcy and insolvency | Proposal | Consumer proposals
A consumer proposal can be made for a settlement of debts or an extension of time for payment or both. Performance of the terms of the proposal must be completed in five years.1 A consumer proposal must provide for payment in priority of all claims of preferred creditors and for payment of all prescribed fees and expenses.2 Mandatory e-filing of all new Part III, Division II proposals became effective January 8, 2007.3
An insolvent consumer debtor commences proceedings under the BIA by providing to a trustee or administrator all financial information, including the reasons for the insolvent's state of affairs.4
Prior to filing a consumer proposal, the administrator must make an assessment of the debtor, conducting a financial appraisal of the debtor and reviewing the statutory and nonstatutory options open to the debtor.5 The administrator may delegate certain assessment duties to a person who has registered with the Designated Senior Bankruptcy Analyst.6 An assessment certificate must be filed with the official receiver at the time of filing the consumer proposal. The debtor must furnish the administrator with the prescribed financial information.7
The trustee or administrator, as the case may be, with the assistance of the insolvent, prepares a consumer proposal, which is filed by the trustee or administrator with the office of the official receiver in the locality of the consumer.8
On the filing of a consumer proposal, all proceedings by creditors with claims provable are stayed, with the exception of an amending consumer proposal filed within six months after the filing of a previous amendment to the same consumer proposal.9
A consumer debtor who wishes to make a consumer proposal commences proceedings by obtaining the assistance of an administrator. The administrator will investigate the debtor's financial affairs and can provide, or provide for, counselling for the debtor.10
A bankrupt may file a consumer proposal. If inspectors have been appointed, the proposal must be approved by the inspectors. In a consumer proposal by a bankrupt, the bankrupt must retain the services of a trustee in bankruptcy to act as administrator.11
Within ten days after filing with the official receiver, the administrator will prepare a report containing the results of its investigation, the administrator's opinion as to whether the consumer proposal is fair and reasonable to the creditors and the debtor, and whether the consumer debtor will be able to perform it; and a list of creditors whose claims exceed $250. The administrator is to file the report with the official receiver and send it to every known creditor.12
In most cases, there will be no meeting of creditors. If no meeting is held, the proposal, after 45 days, is deemed to be accepted by creditors.13 If there is a meeting of creditors, the official receiver will act as chair and creditors can accept the proposal by ordinary resolution.14 The court has no jurisdiction to postpone the deemed acceptance of a consumer proposal: the proposal is either accepted or rejected. If creditors wish more information about the debtor's affairs, the administrator should request the official receiver to direct the administrator to call a meeting of creditors. The creditors could adjourn the meeting to allow an examination of the debtor and a further time for the appraisal or investigation of the affairs of the debtor.15
XI.3(d): Deemed Acceptance
See Canadian Abridgment: BKY.VI.9 Bankruptcy and insolvency | Proposal | Consumer proposals
Where neither the official receiver nor eligible quantum creditors request that a meeting of creditors be called by the trustee or administrator, the consumer proposal is deemed to be accepted by the creditors on the expiration of the 30-day period following the initial filing of the proposal.1
Where a consumer proposal is accepted or deemed accepted by the creditors, the administrator shall, if requested by the official receiver or any other interested party within fifteen days after the day of acceptance or deemed acceptance, forthwith apply to the court to have the consumer proposal reviewed. If no obligation has arisen to apply to the court, the consumer proposal is deemed to be approved by the court.2
The court has no jurisdiction to postpone the deemed acceptance of a consumer proposal; the proposal is either accepted or rejected. If creditors wish more information about the debtor's affairs, the administrator should request the official receiver to direct the administrator to call a meeting of creditors.3
XI.3(e): Creditors’ Meeting
See Canadian Abridgment: BKY.VI.9 Bankruptcy and insolvency | Proposal | Consumer proposals; BKY.VI.3 Bankruptcy and insolvency | Proposal | Meeting of creditors to consider
Unless creditors holding 25 per cent in value of the proven claims request it, there will be no meeting of creditors.1 If creditors do not request the meeting, the proposal is deemed to be accepted by creditors.2
On a request from the official receiver or after 45 days following the filing of the consumer proposal where creditors in the aggregate with 25 per cent of proven claims have requested a meeting, the trustee or administrator must convene a meeting of creditors, with the attendant mailings and filings, within 21 days.3
The administrator or trustee, as nominee of the official receiver, chairs the creditors' meeting.4
If a meeting of creditors is held, the creditors who have filed proofs of claim may by ordinary resolution agree to accept the proposal.5
The administrator or trustee, within the five-day period following the meeting, must advise, in writing, the consumer debtor, every known creditor and the official receiver of the result of the creditors' consideration of the consumer proposal.6
XI.3(f): Court Approval
See Canadian Abridgment: BKY.VI.9 Bankruptcy and insolvency | Proposal | Consumer proposals; BKY.VI.4.a Bankruptcy and insolvency | Proposal | Approval by court | General principles
If a consumer proposal is accepted or deemed to be accepted by creditors, in most cases, there will be no need to apply to the court for approval. The proposal is deemed to be approved by the court unless the official receiver or some other interested party requires that a formal application be made for approval.1 If the value of the debtor's assets exceeds the amount owing to creditors, the court will refuse to approve a consumer proposal; a debtor must be an insolvent natural person to make a consumer proposal.2
A consumer proposal, if accepted by creditors and approved or deemed to be approved by the court, is binding on all unsecured creditors and all secured creditors who have filed proofs of claim.3 If the claim of a creditor comes within s. 178,4 the claim of the creditor will not be released unless the creditor consents to the proposal. A consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court does not release the consumer debtor from any debt or liability referred to in s. 178(1)5 unless the consumer proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability voted for the acceptance of the consumer proposal.6 When the proposal is complete, a creditor with a claim arising out of fraud can, if it did not consent to the proposal, take proceedings to collect the balance of its claim.
XI.3(g): Deemed Annulment
See Canadian Abridgment: BKY.VI.9 Bankruptcy and insolvency | Proposal | Consumer proposals; BKY.VI.5 Bankruptcy and insolvency | Proposal | Annulment of approved proposal
A consumer proposal is deemed to be annulled the day on which the debtor is in default for an amount that is equal to or more than the amount of three payments, in cases where payments are to be made monthly; or the day that is three months after the day on which the debtor is in default in respect of any payment in cases where payments are to be made less frequently than monthly.1 If an amendment to a consumer proposal filed before the deemed annulment of the consumer proposal is withdrawn or refused by the creditors or the court, the consumer proposal is deemed to be annulled at the time that the amendment is withdrawn or refused.2 Without delay after a consumer proposal is deemed to be annulled, the administrator is to file with the official receiver a report in the prescribed form in relation to the deemed annulment; and send a notice to the creditors informing them of the deemed annulment.3 If a consumer proposal made by a bankrupt is deemed to be annulled, the consumer debtor is deemed to have made an assignment in bankruptcy on the day on which the consumer proposal is deemed annulled. The trustee who is the administrator of the consumer proposal must, within five days after the deemed annulment, send notice of the meeting of creditors, at which meeting the creditors may by ordinary resolution affirm the appointment of the trustee or appoint another trustee; and the trustee must, without delay, file with the official receiver, a report of the deemed annulment and the official receiver is to issue a certificate of assignment, which has the same effect for the purposes of the BIA as an assignment in bankruptcy.4 A deemed annulment of a consumer proposal does not prejudice the validity of any sale or disposition of property or payment duly made, or anything duly done under the consumer proposal; and despite the deemed annulment, a guarantee given under a consumer proposal remains in full force and effect in accordance with its terms.5
XI.3(h): Revival of a Consumer Proposal
See Canadian Abridgment: BKY.VI.9 Bankruptcy and insolvency | Proposal | Consumer proposals
Prior to 2009, there was no statutory language allowing revival of a consumer proposal that was in default. The administrator now has the discretion to revive a consumer proposal that has been deemed annulled.1 If the administrator considers it appropriate to do so in the circumstances, it may, with notice to the official receiver, send to the creditors, within 30 days after the day on which the consumer proposal was deemed annulled, a notice informing them that the consumer proposal will be automatically revived 60 days after the day on which it was deemed to be annulled.2 If the notice is sent by the administrator and no notice of objection is filed, the consumer proposal is automatically revived on the expiry of that period.3 The provisions assist in situations where the debtor faces a temporary problem meeting payments, for example, due to illness or temporary unemployment, but otherwise is making good faith efforts to comply with the terms of the proposal. If a notice of objection is filed, the administrator is to send, without delay, to the official receiver and to each creditor a notice informing them that the consumer proposal is not going to be automatically revived on the expiry of the 60-day period.4 The administrator may at any time apply to the court, with notice to the official receiver and the creditors, for an order reviving any consumer proposal of a consumer debtor who is not a bankrupt that was deemed to be annulled, and the court, if it considers it appropriate to do so in the circumstances, may make an order reviving the consumer proposal, on any terms that the court considers appropriate.5 The administrator must, without delay after a consumer proposal is revived, file with the official receiver a report in the prescribed form in relation to the revival; and send a notice to the creditors informing them of the revival.6 The Act confirms the validity of things done by a creditor in the exercise of the creditor's rights between the day on which the consumer proposal is deemed to be annulled and the day on which it is revived.7
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