Section 50 — Bankruptcy and Insolvency Act: Who may make a proposal

Subject to subsection (1.1), a proposal may be made by an insolvent person; a receiver, within the meaning of subsection 243(2), but only in relation to an insolvent person; a liquidator of an insolvent person’s property; a bankrupt; and a trustee of the estate of a bankrupt. A proposal may not be made under this Division with respect to a debtor in respect of whom a consumer proposal has been filed under Division II until the administrator under the consumer proposal has been discharged. A proposal must be made to the creditors generally, either as a mass or separated into classes as provided in the proposal, and may also be made to secured creditors in respect of any class or classes of secured claim, subject to subsection (1.3). Where a proposal is made to one or more secured creditors in respect of secured claims of a particular class, the proposal must be made to all secured creditors in respect of secured claims of that class. Secured claims may be included in the same class if the interests or rights of the creditors holding those claims are sufficiently similar to give them a commonality of interest, taking into account the nature of the debts giving rise to the claims; the nature and rank of the security in respect of the claims; the remedies available to the creditors in the absence of the proposal, and the extent to which the creditors would recover their claims by exercising those remedies; the treatment of the claims under the proposal, and the extent to which the claims would be paid under the proposal; and such further criteria, consistent with those set out in paragraphs (a) to (d), as are prescribed. The court may, on application made at any time after a notice of intention or a proposal is filed, determine, in accordance with subsection (1.4), the classes of secured claims appropriate to a proposal, and the class into which any particular secured claim falls. Subject to section 50.1 as regards included secured creditors, any creditor may respond to the proposal as made to the creditors generally, by filing with the trustee a proof of claim in the manner provided for in sections 124 to 126, in the case of unsecured creditors; or sections 124 to 134, in the case of secured creditors. Hereinafter in this Division, a reference to an unsecured creditor shall be deemed to include a secured creditor who has filed a proof of claim under subsection (1.6), and a reference to an unsecured claim shall be deemed to include that secured creditor’s claim. All questions relating to a proposal, except the question of accepting or refusing the proposal, shall be decided by ordinary resolution of the creditors to whom the proposal was made. Subject to section 50.4, proceedings for a proposal shall be commenced, in the case of an insolvent person, by filing with a licensed trustee, and in the case of a bankrupt, by filing with the trustee of the estate, a copy of the proposal in writing setting out the terms of the proposal and the particulars of any securities or sureties proposed, signed by the person making the proposal and the proposed sureties if any; and the prescribed statement of affairs. Copies of the documents referred to in subsection (2) must, at the time the proposal is filed under subsection 62(1), also be filed by the trustee with the official receiver in the locality of the debtor. A proposal made in respect of a bankrupt shall be approved by the inspectors before any further action is taken thereon. No proposal or any security, guarantee or suretyship tendered with the proposal may be withdrawn pending the decision of the creditors and the court. Subsection (4) shall not be construed as preventing an insolvent person in respect of whom a proposal has been made from subsequently making an assignment. The trustee shall make or cause to be made such an appraisal and investigation of the affairs and property of the debtor as to enable the trustee to estimate with reasonable accuracy the financial situation of the debtor and the cause of the debtor’s financial difficulties or insolvency and report the result thereof to the meeting of the creditors. The trustee shall, when filing a proposal under subsection 62(1) in respect of an insolvent person, file with the proposal a statement —

or a revised cash-flow statement if a cash-flow statement had previously been filed under subsection 50.4(2) in respect of that insolvent person — (in this section referred to as a “cash-flow statement”) indicating the projected cash-flow of the insolvent person on at least a monthly basis, prepared by the person making the proposal, reviewed for its reasonableness by the trustee and signed by the trustee and the person making the proposal; a report on the reasonableness of the cash-flow statement, in the prescribed form, prepared and signed by the trustee; and a report containing prescribed representations by the person making the proposal regarding the preparation of the cash-flow statement, in the prescribed form, prepared and signed by the person making the proposal. Subject to subsection (8), any creditor may obtain a copy of the cash-flow statement on request made to the trustee. The court may order that a cash-flow statement or any part thereof not be released to some or all of the creditors pursuant to subsection (7) where it is satisfied that such release would unduly prejudice the insolvent person; and non-release would not unduly prejudice the creditor or creditors in question. If the trustee acts in good faith and takes reasonable care in reviewing the cash-flow statement, he is not liable for loss or damage to any person resulting from that person’s reliance on the cash-flow statement. Subject to any direction of the court under paragraph 47.1(2)(a), the trustee under a proposal in respect of an insolvent person shall, for the purpose of monitoring the insolvent person’s business and financial affairs, have access to and examine the insolvent person’s property, including his premises, books, records and other financial documents, to the extent necessary to adequately assess the insolvent person’s business and financial affairs, from the filing of the proposal until the proposal is approved by the court or the insolvent person becomes bankrupt, and shall file a report on the state of the insolvent person’s business and financial affairs — containing the prescribed information, if any — with the official receiver without delay after ascertaining a material adverse change in the insolvent person’s projected cash-flow or financial circumstances, and with the court at any time that the court may order; send a report about the material adverse change to the creditors without delay after ascertaining the change; and send, in the prescribed manner, a report on the state of the insolvent person’s business and financial affairs — containing the trustee’s opinion as to the reasonableness of a decision, if any, to include in a proposal a provision that sections 95 to 101 do not apply in respect of the proposal and containing the prescribed information, if any —

to the creditors and the official receiver at least 10 days before the day on which the meeting of creditors referred to in subsection 51(1) is to be held. An interim receiver who has been directed under subsection 47.1(2) to carry out the duties set out in subsection (10) in substitution for the trustee shall deliver a report on the state of the insolvent person’s business and financial affairs, containing any prescribed information, to the trustee at least fifteen days before the meeting of creditors referred to in subsection 51(1), and the trustee shall send the report to the creditors and the official receiver, in the prescribed manner, at least ten days before the meeting of creditors referred to in that subsection. The court may, on application by the trustee, the interim receiver, if any, appointed under section 47.1 or a creditor, at any time before the meeting of creditors, declare that the proposal is deemed to have been refused by the creditors if the court is satisfied that the debtor has not acted, or is not acting, in good faith and with due diligence; the proposal will not likely be accepted by the creditors; or the creditors as a whole would be materially prejudiced if the application under this subsection is rejected. If the court declares that the proposal is deemed to have been refused by the creditors, paragraphs 57(a) to (c) apply. A proposal made in respect of a corporation may include in its terms provision for the compromise of claims against directors of the corporation that arose before the commencement of proceedings under this Act and that relate to the obligations of the corporation where the directors are by law liable in their capacity as directors for the payment of such obligations. A provision for the compromise of claims against directors may not include claims that relate to contractual rights of one or more creditors arising from contracts with one or more directors; or are based on allegations of misrepresentation made by directors to creditors or of wrongful or oppressive conduct by directors. The court may declare that a claim against directors shall not be compromised if it is satisfied that the compromise would not be just and equitable in the circumstances. Subsection 62(2) and section 122 apply, with such modifications as the circumstances require, in respect of claims against directors compromised under a proposal of a debtor corporation. The court, on application made at any time after a proposal is filed, may determine the classes of claims of claimants against directors and the class into which any particular claimant’s claim falls. Where all of the directors have resigned or have been removed by the shareholders without replacement, any person who manages or supervises the management of the business and affairs of the corporation shall be deemed to be a director for the purposes of this section.