Division 1 Proposal in Canada
If your company is under severe financial pressure, a Division 1 Proposal may give you a legal path to deal with creditor claims and keep moving forward.
A Division 1 Proposal is a formal process under Canada’s Bankruptcy and Insolvency Act. It allows an insolvent business to make a proposal to its creditors to settle unsecured debt for less than the full amount owed, extend time for payment, or both. If accepted by creditors and approved by the court, the proposal becomes legally binding.
- Serving Ontario and other provinces
- Avoid Bankruptcy
- Keep All Assets
- Stop Creditor Action Immediately
What Is a Division 1 Proposal?
A Division 1 Proposal is a formal restructuring process under the Bankruptcy and Insolvency Act (BIA) that allows businesses and individuals with significant debt to negotiate a settlement with creditors.
Instead of declaring bankruptcy, a Division 1 Proposal allows you to restructure how debt is repaid while continuing operations.
This legal process can help you:
• Reduce total debt obligations
• Stop creditor collection actions
• Prevent asset liquidation
• Continue operating your business
• Create structured repayment terms
Once the proposal is accepted by creditors and approved by the court, the agreement becomes legally binding on all creditors included in the proposal.
For many businesses in Ontario, a Division 1 Proposal provides a structured path forward without bankruptcy.
Who Is a Division 1 Proposal For?
A Division 1 Proposal may be the right solution if your business is experiencing serious financial pressure but still has the ability to operate and recover.
This restructuring option is commonly used by:
If your company still has value but debt is becoming unmanageable, restructuring through a Division 1 Proposal may provide the solution.
We reduce your debt. Not your dignity.
Division 1 Proposal vs Consumer Proposal
Division 1 Proposal
- For businesses and individuals
- Has no debt limit
- Involves formal creditor vote & court approval
Consumer Proposal
- For individuals only
- Unsecured debts under $250,000 (excluding mortgage)
- Maximum term of 5 years
Key difference:
If a Division 1 Proposal is rejected by creditors, the debtor is automatically declared bankrupt.
This is why having a law firm manage the preparation, negotiation, and strategy is essential.
How a Division 1 Proposal Works (Step-by-Step)
Below is the restructuring process exactly as outlined by the Government of Canada, with additional guidance on how we support you:
Financial Review
The business’s financial position is reviewed, including liabilities, creditor pressure, available cash flow, and whether the company can make a credible proposal. An asset review may also be part of this stage.
Proposal Preparation
The debtor works with a Licensed Insolvency Trustee to prepare an offer for creditors. The proposal may involve paying back a portion of unsecured debt, extending time to pay, or both. The proposal generally needs to offer creditors a better result than bankruptcy.
Filing and Stay of Proceedings
Once filed, there is generally a stay of proceedings that stops unsecured creditors from continuing collection action on debts included in the proposal.
Creditor Vote
Creditors vote on the proposal. Approval is based on creditor voting rules under the insolvency framework.
Court Approval
If accepted by the required creditor majority, the proposal goes to court for approval. If approved, it becomes binding on the affected creditors.
Completion or Failure
If the proposal is completed, the debtor gets the benefit of the compromise. If a Division 1 Proposal is rejected by creditors, it can result in an automatic bankruptcy.
Risks & Considerations
A Division 1 Proposal is a serious legal process. It is not just a negotiation tactic.
Important considerations include:
We reduce your debt. Not your dignity.
Consumer Proposal vs. Division 1 Proposal
Consumer Proposal
Division 1 Proposal
Debt Limit
Under $250,000
No limit
Who Can File
Individuals
Individuals & Businesses
Max Term
5 years
Flexible
Automatic Bankruptcy if Rejected
Asset Protection
Best For
Personal debt
Business debt / high debt
Division 1 Proposal FAQs
Take Control of Your Business Debt Today
A Division 1 Proposal may help your business avoid bankruptcy, protect assets, and regain financial stability.