When small-to-medium-sized companies face financial challenges, they often turn to what is called a proposal under the Bankruptcy & Insolvency Act to effect a restructuring, instead of the CCAA proceedings which are normally more court driven and complex. In this situation, the company can either file a proposal with its creditors immediately (i.e., the plan is formulated in advance in concert with a firm such as Farber and legal advisors), or it files a Notice of Intent to file a proposal (NOI), which provides an initial 30-day filing period, with the ability to extend the time for filing up to six months, with court approval. Importantly, this does not mean the company is bankrupt; rather it is a debtor in possession and control and buys time for the company to formulate a restructuring plan.
While the NOI proceeding is a more streamlined process, with less court involvement and various milestones prescribed by the Bankruptcy & Insolvency Act, it provides many of the same benefits as the CCAA proceeding, including:
- a stay of proceedings,
- the ability to obtain DIP funding to finance operations while the restructuring takes place,
- the ability to disclaim or assign major contracts,
- the ability to conduct a SISP to find an investor or purchaser as part of a restructuring process and
- subject to the restructuring path taken, the filing of a plan with creditors.
Role of the proposal trustee
In an NOI proceeding, the independent third party appointed is called a proposal trustee—a role similar to the monitor in the CCAA proceeding. Its responsibilities include assisting with cash flow forecasting and reporting, conducting a SISP, and filing a proposal with the creditors, among other duties. Farber has acted as proposal trustee in many NOI proceedings to help successfully restructure companies/effect a sale.
Bankruptcy: Bankruptcy trustee
When there is no prospect of a company surviving, it may be assigned into bankruptcy as a voluntary process, or petitioned into bankruptcy by a creditor. On becoming bankrupt, a firm such as Farber will be appointed bankruptcy trustee, with one of the initial responsibilities being to notify the creditors of the First Meeting of Creditors, which is to be held within 21 days of bankruptcy.
Subject to the nature of the business, assets and liabilities, the bankruptcy estate will thereafter be managed by the bankruptcy trustee pursuant to the directions of the creditors and/or inspectors appointed on behalf of creditors. The bankruptcy trustee can also seek direction of the court regarding the ongoing management of the bankruptcy estate. Ultimately, the bankruptcy provides the forum for realization of assets, adjudication of claims and payout of claims in order of priority. Bankruptcy often results in a liquidation of the company’s assets, but not always—sometimes the business assets are sold to a new corporation which may continue all or part of the business as a going concern.