An individual or a corporation with debts exceeding $250,000 has the option of submitting a Division 1 proposal between the individual, or the company, and the unsecured creditors. The proposal is simply an agreement between the individual, or the company’s, and their unsecured creditors whereby there is an agreement for the individual or the company to pay only a portion of the outstanding debts (Example: 50%), thus avoiding bankruptcy. A proposal is made to the unsecured creditors through a licensed insolvency trustee lawyer.
If the unsecured creditors accept the proposal, based on the voting at the meeting of creditors as described below, and the court then approves it, the proposal is a binding contract which all unsecured creditors must accept, including the creditors who did not vote for the proposal. If the unsecured creditors decide to vote against the proposal then the person or company is automatically bankrupt.