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.