Facing unmanageable corporate debt is a crisis that requires immediate, strategic action. In 2026, the Canada Revenue Agency (CRA) has intensified collection efforts on post-pandemic arrears. However, bankruptcy is not your only option. This guide explains exactly how to restructure corporate debt using a Division I Proposal—a legal process that allows you to pay a percentage of what you owe while keeping your business open. We will walk you through the insolvency restructuring steps, director liability protection, and securing emergency bridge financing.
- 🇨🇦 Restructuring Options 2026: Proposal vs. Bankruptcy vs. CCAA
- 📋 Identifying Insolvency: When to Act? (Warning Signs)
- 📝 How to File a Division I Proposal: Step-by-Step
- ⚠️ Critical Warnings: Director Liability Mistakes
- 🧮 Corporate Debt Settlement Calculator (Estimation)
- 📌 Corporate Restructuring Key Takeaways & Quick Summary
- ❓ Frequently Asked Questions About Corporate Insolvency
🇨🇦 Restructuring Options 2026: Proposal vs. Bankruptcy vs. CCAA
Before contacting a Licensed Insolvency Trustee (LIT), you must understand the legal vehicles available to protect your assets. Choosing the wrong path can trigger director liability for unpaid GST/HST.
Below is the 2026 comparison of Verified insolvency procedures. Select the tab that fits your debt level.
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🏛️ Division I Proposal (The Rescue Plan)
This is the primary tool for businesses owing unsecured debt (no limit). It is a formal offer to creditors to settle debts for less than the full amount.
- Stay of Proceedings: Immediately stops all lawsuits, wage garnishments, and CRA frozen accounts.
- Control: You retain possession of your assets and continue operations.
- Approval: Requires 50% + 1 of creditors (by number) and 66.6% (by value) to vote “Yes”.
- Outcome: Successful completion wipes out the remaining eligible debt legally.
⚖️ CCAA (Companies’ Creditors Arrangement Act)
Designed for larger corporations with debts exceeding $5 Million CAD. It offers more flexibility than a proposal but is much more expensive to administer.
- Complex Restructuring: Allows for disclaiming onerous contracts (e.g., expensive leases).
- Court Monitor: A monitor is appointed to oversee the business, but management remains in place.
- Debtor-in-Possession (DIP) Financing: Allows the company to borrow new money to keep operating during the process.
📉 Corporate Bankruptcy
The final option when the business is not viable. Assets are liquidated to pay creditors.
- Closure: The business ceases operations immediately.
- Asset Seizure: An LIT takes control of all assets to sell them.
- Liability Risk: Directors may still be personally liable for unpaid payroll (Source Deductions) and GST/HST.
📋 Identifying Insolvency: When to Act? (Warning Signs)
Waiting too long to restructure eliminates your options. If you are using high-interest merchant cash advances to pay payroll, you are likely already insolvent under the Bankruptcy and Insolvency Act (BIA).
The Liquidity Test
Are you unable to meet obligations as they generally become due? If you are consistently late on supplier payments or rent, this is the legal definition of insolvency.
CRA Requirements to Pay
Receiving a “Requirement to Pay” letter from the CRA means they can seize your bank accounts or accounts receivable without a court order.
Net Asset Deficiency
If the fair market value of your assets is less than your total liabilities, your balance sheet is insolvent. This prevents you from securing traditional commercial bank loans.
Director Liability
Directors are personally liable for unremitted Source Deductions and GST/HST. Restructuring early is the only way to mitigate this personal financial risk.
💎 Hidden Protections & “Super-Priority” Claims
Understand which debts get paid first to protect your personal assets.
WEPP (Wage Protection)
The Wage Earner Protection Program covers unpaid wages up to ~$8,500 (2026 Est.) per employee, taking priority over secured creditors.
30-Day Goods
Suppliers can demand the return of goods delivered in the last 30 days if unpaid. This is critical for inventory management.
DIP Financing
Debtor-in-Possession financing allows you to borrow funds with “Super-Priority” status to fund operations during restructuring.
📝 How to File a Division I Proposal: Step-by-Step
This process legally freezes creditors and gives you time to reorganize. You must work with a Licensed Insolvency Trustee to execute this.
1. File NOI
Notice of Intention
File a Notice of Intention (NOI). This provides an immediate 30-day stay of proceedings. No creditor can sue you or seize assets during this time.
2. Cash Flow
Projections
Prepare detailed cash flow projections for the restructuring period. You must prove the business is viable if debts are reduced.
3. The Proposal
Offer to Creditors
Submit your proposal (e.g., “We will pay 40 cents on the dollar over 3 years”). A meeting of creditors is called to vote within 21 days.
4. Court Approval
Ratification
If creditors vote “Yes”, the court must approve the proposal. Once approved, it is legally binding on ALL unsecured creditors, even those who voted “No”.
⚠️ Critical Warnings: Director Liability Mistakes
Do not resign as a director after the company has become insolvent expecting to avoid liability. The CRA can assess directors for unpaid GST/HST aggressively.
🚫 Avoiding the “Deemed Trust” Trap
Unremitted employee source deductions and GST/HST are considered “Deemed Trust” funds. They are NOT your money. Using these funds to pay other suppliers is a criminal offense in some cases and guarantees personal liability.
🔄 2025 vs 2026 Insolvency Thresholds
- [OLD] 2025 WEPP Limit: $8,278
- [OLD] Small Business Debt Cap: $250,000
- [OLD] CRA Interest Rate: 9% Prescribed
- [OLD] Mediation Access: Limited
- [OLD] Filing Fee: Standard
- [NEW] 2026 WEPP Limit: $8,500 (Est.)
- [NEW] Small Business Debt Cap: Adjusted for Inflation
- [NEW] CRA Interest Rate: 10% (Projected)
- [NEW] Mediation Access: Expanded Online
- [NEW] Filing Fee: +5% Increase
(*Disclaimer: The figures above are AI-generated projections for simulation purposes only. Please verify Verified announcements for confirmed data.*)
🧮 Corporate Debt Settlement Calculator (Estimation)
Estimate how much you might pay in a Division I Proposal. Successful proposals typically offer creditors between 20% to 50% of the total debt.
Total Unsecured Debt: $100000
*Estimate only. Actual acceptance depends on creditor votes and liquidation value.
📌 Corporate Restructuring Key Takeaways & Quick Summary
Acting fast is the only way to save your business. A Notice of Intention (NOI) is your most powerful shield against CRA asset seizure.
Quick Recap
- Don’t ignore the CRA: Unpaid GST/HST creates personal director liability that cannot be discharged easily.
- Division I Proposal: Allows you to pay a fraction of debts while keeping the business open—superior to bankruptcy.
- Get Professional Help: Only a Licensed Insolvency Trustee (LIT) can file these legal documents. “Debt Consultants” cannot.
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❓ Frequently Asked Questions About Corporate Insolvency
Common questions about avoiding bankruptcy in Canada and protecting personal assets.
Generally, no. A corporate Division I Proposal affects the company’s credit rating (R9). However, if you personally guaranteed company loans, the lender will pursue you personally if the proposal doesn’t cover their debt.
Yes. CRA debts (GST/HST, Payroll, Income Tax) are unsecured debts and can be included. However, the proposal must offer a better return than bankruptcy for the CRA to vote “Yes”.
This is the critical risk. If the creditors vote “No”, the company is automatically deemed bankrupt immediately. This is why the initial offer must be carefully calculated by your LIT.
Yes, restructuring often involves downsizing. Terminated employees can claim unpaid wages through the WEPP program, which is funded by the government, relieving some cash flow pressure on the business.
Costs vary but expect professional fees to start around $10,000 – $15,000 plus a percentage of the funds distributed to creditors. These fees are paid out of the proposal funds.
🛡️ DISCLAIMER: This article is for informational purposes only and does not constitute legal or financial advice. Insolvency laws are complex. Please verify details with a Licensed Insolvency Trustee (LIT) and the Office of the Superintendent of Bankruptcy before taking action.