A consumer proposal offered to creditors has to be approved by a creditors vote. A vote needs to achieve a majority in value (more than 50%) of creditors voting in favour of the proposal to pass. When a proposal passes, it forces all general unsecured creditors(with minor exceptions)to settle their claims against the debtor for the amount offered in the proposal.
Consumer proposals get accepted in our office “eventually” at a rate of 95% or better.
This means acceptance of proposals by a combination of creditor votes by the initial vote 45 days from the filing of the proposal PLUS acceptance of proposals that are initially rejected by the vote at 45 days, but are accepted after they are negotiated and/or amended (usually by offering more overall payment), within a couple of weeks after the initial 45 day vote.
This high success rate for acceptance is due to offering proposals that make sense to creditors and including the terms and conditions they commonly want. Creditors know that if the proposal is not eventually approved, the debtor will probably consider bankruptcy in which case the creditors will likely get less than what is offered in the proposal.
It is also useful to know and understand the voting trends of certain major creditors because large institutional creditors like banks, credit unions, and Canada Revenue Agency tend to follow general internal policies in what they are prepared to accept in a proposal, and these internal policies can change from time to time.
Here are some of the documents the Licensed Insolvency Trustee, acting as Administrator of a consumer proposal, needs to prepare in order to provide sufficient information for creditors to consider the proposal;
- a thorough statement of affairs of the debtor describing the debtor’s assets with realistic liquidation values, a list of creditors both unsecured and secured with notes advising what asset is held as security by which creditor, and the debtor’s personal information such as age, employment, employer, marital status, dependents and causes of financial problem, and disclosure of recent sales or transfers of assets and any large payments favouring a creditor over others.
- an estimated statement of the debtor’s household income and living expenses.
- the consumer proposal which describes how much the debtor is offering and the terms of payment(usually how much per month and for how long).
- an Administrator’s report giving the recommendation and justification of the Administrator for why the creditors should accept the proposal. The justification is commonly a comparison between the proposal offer and an estimate of what creditors could expect in a bankruptcy.
The creditors are relying on the Administrator’s knowledge, investigation and professional integrity in preparing accurate and fair information for the creditors to consider. The Administrator also has to ensure the debtor is aware of their overall budget to ensure that household living expenses as well as the payments towards the proposal are reasonable and can be met by the debtor’s anticipated household income. There should be historical proof of the debtor’s income provided to the Administrator by the debtor to satisfy this concern so that the Administrator can give the creditors an opinion that the debtor can make the proposal payments.