creditor approval consumer proposal toronto
Consumer Proposal in Toronto

How creditors approve consumer proposals

When a consumer proposal is filed by a Licensed Insolvency Trustee with the Office of the Superintendent of Bankruptcy (“OSB”), the trustee will send a copy of the proposal to your creditors for their review and evaluation.

Your creditors have 45 days from the date your proposal was filed with the OSB to contact your trustee and file the following legal documents:

  • a proof of claim – this a statement signed by the creditor (and witnessed) with supporting documentation indicating that the creditor is owed money by you.
  • a voting letter – this is a document indicating that the creditor shall be :
    • voting in favour of the consumer proposal
    • voting against the consumer proposal
    • voting against the consumer proposal and request a meeting of creditors be held by the trustee

Towards the end of the 45 day review period, your trustee will make a tally of the proofs of claim and voting letters received. There are four possible outcomes:

1. All creditors are in favour of the proposal

2. A majority of creditors are against the proposal, but have not requested a meeting of creditors

3. A majority of creditors are in favour of the proposal, with a minority against it, but that minority of creditors holds at least 25% in the value of claims and they have requested a meeting of creditors

4. A majority of creditors are against the proposal and have requested a meeting of creditors

So what do these outcomes mean for your consumer proposal?

  • If 1 applies, that is great news for you! Your creditors are deemed to have accepted your consumer proposal at the expiration of the 45-day review period.
  • If 2 applies, it’s not great, but there is a quirk in the Bankruptcy and Insolvency Act that indicates that your consumer proposal will still be approved even if your creditors have voted against it because they haven’t requesting a meeting of creditors to review, discuss and evaluate the consumer proposal. So notwithstanding their vote against your consumer proposal, your creditors are deemed to have accepted your consumer proposal at the expiration of the 45-day review period.
  •  If 3 applies, your trustee will be required  to call a meeting of creditors so your creditors can formally vote on the approval or non-approval of your consumer proposal at that meeting. However, if a majority of your creditors at that meeting will be voting in favour of it, then it will be approved – the meeting is merely a formality
  • If 4 applies, your trustee will be required  to call a meeting of creditors so your creditors can formally vote on the approval or non-approval of your consumer proposal at that meeting. However, if a majority of your creditors at that meeting will be voting against it, it won’t be approved.

WHAT HAPPENS NEXT?

If your consumer proposal is approved by your creditors at the meeting of creditors (or deemed approved if no such meeting is requested), there is another 15 day waiting period in which any “interested party”( this could be a creditors, the trustee or an OSB representative) can request that your consumer proposal be reviewed by a bankruptcy court. However, this rarely ever happens, so practically speaking, once the 45-day review period expires (or the consumer proposal is accepted a meeting of creditors), you are home free. You would make arrangements to pay to your bankruptcy trustee your consumer proposal payments (e.g., post-dated cheque or direct debit). These payments are held in trust by your trustee for the benefit of your creditors.

If your consumer proposal is not approved by your creditors, then you are back to square one. That is, you will have to sit down with your trustee to re-evaluate what other options you have to deal with your debts, which may include filing for personal bankruptcy.

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