I hope you and your business are safe and well. If your company is facing creditor pressure, falling cash flow, or uncertainty about whether it can keep operating, choosing a restructuring route can feel like another major risk. You don’t have to make this decision in the dark. I help directors compare the available paths against their company’s viability, creditor landscape and immediate needs.
The question owners ask me most often is not about statutes. It is about control: if we do this, do we still run our own company? That is what debtor in possession means, and in Canada the answer depends entirely on which route you choose. A debtor in possession is a company that keeps possession of its assets and continues operating the business while it restructures under court or statutory protection, rather than handing control to a receiver or a bankruptcy trustee.
Debtor in Possession Key Takeaways
- Start with viability: A Division I Proposal or CCAA process needs a credible plan for a viable or partly viable business, not simply a pause in collections.
- A debtor in possession keeps its assets and continues running the business during restructuring. In Canada, both a Division I Proposal and a CCAA filing generally leave the company in possession; receivership and bankruptcy do not.
- DIP financing (debtor in possession financing) is new money advanced to a company while it restructures. Under the CCAA, the court can approve interim financing and grant the lender a charge over company assets, sometimes ahead of existing security.
- A Division I Proposal under Part III, Division I of the Bankruptcy and Insolvency Act (BIA) is often a practical formal route for small and mid-sized Ontario companies. It has no statutory minimum debt threshold.
- The Companies’ Creditors Arrangement Act (CCAA) generally applies when claims against a company, or affiliated companies, are more than $5 million.
- A Division I Proposal is filed through a Licensed Insolvency Trustee (LIT); a CCAA case is court-supervised and requires a court-appointed monitor.
- Cost, time, secured-creditor support, the number of creditor groups, leases, CRA obligations, financing needs and cross-border issues can matter in a debtor in possession restructuring as much as the total debt.
- An unsuccessful Division I Proposal normally results in the debtor in possession restructuring being turned into a deemed assignment in bankruptcy administration now controlled by the Licensed Insolvency Trustee and not the debtor. Directors should understand that risk before filing.
Debtor In Possession Highlights
- Should viability come before choosing a formal process?
- What does debtor in possession mean in Canada?
- What is a Division I Proposal?
- What is a CCAA restructuring?
- How should directors compare the available routes?
- How do the four main routes compare?
- What are the risks of choosing the wrong route?
- What should directors do in the first 30 days?
- What are common questions about Division I Proposals and CCAA?
- Sources and further reading
Should viability come before choosing a formal process?
Yes. The first question is not “Which statute should we use?” It is “Is there a fundable plan?”
A viable business is one that can reasonably continue operating if its financial difficulties are addressed. It may need a smaller footprint, new financing, revised payment terms, a sale process or a compromise with creditors. But there must be a credible route from today’s cash position to sustainable operations.
In my first meeting with directors, I ask: “If the company had breathing room from its legacy debt, could it operate and generate enough cash to support a realistic restructuring?” We then test that answer against weekly cash flow, current obligations, customers, suppliers, financing, and the company’s actual operating needs.
A stay of proceedings, a legal pause on certain creditor actions, can buy time. It does not create revenue, restore supplier confidence, or fund payroll. The company still needs to meet obligations incurred after filing and, where relevant, maintain critical supplies and operations.
If the numbers do not support a plan, a formal restructuring will be unsuccessful and will only postpone a necessary sale or wind-down while adding expense. If they do support a plan, choosing the right process can be a lifeline: it may give the company time and structure to pursue a genuine turnaround.
What does debtor in possession mean in Canada?
Canada has no equivalent of the American Chapter 11 filing. There is no single “debtor in possession” statute here. What Canada has instead is a set of restructuring routes that either leave the company in possession of its business or take that possession away.
Under a Division I Proposal and under the CCAA, the company generally remains a debtor in possession. Management continues to run operations, subject to the statutory duties of the proposal process and, in a CCAA case, subject to court orders and the oversight of a court-appointed monitor. A monitor reports to the court; a monitor does not take over the business the way a receiver does. That distinction is the whole point of the phrase, and it is the distinction owners care about most.
The alternative routes are different. In a receivership, a receiver takes control of specified property or operations, and the company is no longer the party in possession of what the receiver controls. In a bankruptcy, the trustee administers the estate, and the corporation does not continue as the same operating entity. So when a director asks “do we keep control?”, the honest answer is that control is not a reward for choosing a particular statute. It is a feature of the route, and it comes with conditions attached.
Why does the phrase matter so much in practice? Because possession is what lets a company keep customers, suppliers and employees. A business that loses possession in the middle of a restructuring usually loses its operating momentum too. The value being preserved is often the going concern itself, and possession is how that value stays intact.
It also matters to lenders. A company that remains in possession still needs cash, and the willingness of a secured lender to keep supporting the business often turns on whether it trusts management to operate through the process. Possession without financing is a short-lived advantage.
What is a Division I Proposal?
A Division I Proposal is a formal compromise or arrangement with creditors under Part III, Division I of the BIA. A corporation files its proposal through an LIT, who helps administer the process and carries out statutory duties. A proposal can offer affected creditors revised payments or other terms; its design depends on the company’s circumstances and must be developed with professional advice.
The company remains a debtor in possession throughout. Management keeps operating the business while the LIT administers the statutory process, and the directors remain in place. That is one reason the proposal route suits owner-managed Ontario companies: the people who know the business keep running it, subject to the terms of the proposal and the oversight built into the BIA.
There is no minimum debt amount in the BIA that a company must owe to use this route. That makes a proposal a common formal option for small and mid-sized Ontario companies that need a structured process, but may not need the scale and court involvement of a CCAA case.
A company may first file a Notice of Intention (NOI) under BIA section 50.4. The NOI triggers the stay in BIA section 69(1), subject to statutory limits and exceptions. The company has an initial 30 days to file a proposal, although the court may grant extensions within statutory limits. The NOI is not itself the proposal.
Once the proposal is filed, BIA section 69.1 provides a separate stay, again subject to exceptions and court orders. These protections can restrain certain creditor proceedings and enforcement steps, but they are not a blanket answer to every creditor or every legal right. Directors need advice on the specific security, claim and enforcement circumstances.
Creditor acceptance and court approval are both required. Under BIA section 54, unsecured creditors vote by class. In the applicable unsecured creditor class or classes, acceptance requires a majority in number and two-thirds in value of the creditors present, personally or by proxy, and voting, in each unsecured creditor class. There can be one or more than one such class. It all depends on the circumstances of the individual insolvency restructuring case. A court must then approve, or sanction, the proposal. Secured creditors’ rights and votes are addressed separately under the BIA; an unsecured vote alone does not rewrite a secured creditor’s rights.
The consequence of failure is important. If creditors reject the proposal, or the court refuses approval, the debtor is automatically deemed to have made an assignment in bankruptcy. An NOI also has statutory deadlines, and failing to comply with them can trigger a deemed assignment. This is not a filing to use casually or without a credible financing and voting plan.
What is a CCAA restructuring?
The CCAA is a court-supervised restructuring statute designed for a debtor company seeking a compromise or arrangement with creditors. The statutory threshold is more than $5 million in claims against the debtor company or affiliated debtor companies, determined under section 20 of the Act. The wording of section 3(1) of the CCAA states that the Act applies to companies having “more than $5,000,000,” not simply $5 million or more. Affiliated company claims may count together.
When the court makes an initial order, it appoints a monitor. A licensed trustee who reviews and reports on the company’s financial affairs and the restructuring process. The court may also grant a stay of proceedings, generally for no more than 10 days on the initial application; further relief requires a court order. The order’s terms and any later extensions matter.
The CCAA offers broad court supervision and flexibility, and the company generally remains a debtor in possession while it uses that flexibility. For example, a company may ask the court to approve DIP financing: debtor-in-possession financing, new funding advanced during the restructuring. Under section 11.2 of the CCAA, the court may make an order for interim financing and authorize a charge on the company’s property to secure it, potentially with priority over existing security, subject to the statutory conditions, notice requirements and the court’s assessment of the company’s circumstances. This can be useful where the business is viable but cannot operate through a restructuring without new cash.
DIP financing is where the phrase “debtor in possession” earns its keep commercially. A lender advancing money to an insolvent company wants to know its money will be secured and that it ranks properly. The court’s charge gives it that comfort. Without it, many viable companies would simply run out of cash before a plan could be presented. With it, the company keeps possession and keeps operating, but the new debt sits on the assets and must be repaid.
Creditor voting takes place in classes. Class structure must be approved by the court. Under section 6, acceptance generally requires a majority in number representing two-thirds in value of creditors present and voting in each relevant class, followed by court sanction. Employee and pension obligations are also governed by statutory protections and should be assessed from the outset.
A company may have cross-border complications, for example, an active restructuring or substantial assets and operations in another country. Part IV of the CCAA provides a framework for recognition and cooperation involving foreign insolvency proceedings. The available route and relief depend on the facts, court orders and relevant jurisdictions.
The CCAA is often suited to larger, more complex restructurings, including those involving multiple creditor classes, extensive leases, litigation, cross-border matters or a need for court-approved interim financing. That flexibility comes with more process, professional involvement and expense.
How should directors compare the available routes?
The debt threshold is a useful first screen, not a final answer. I usually focus on the practical questions below.
- How much debt is involved, and how is it counted? A company near the CCAA threshold needs a careful claims analysis, including possible affiliated-company claims. A Division I Proposal has no comparable minimum debt level.
- How many creditor groups need separate treatment? A concentrated unsecured creditor group may be easier to address through a proposal. Different classes of secured creditors, bondholders, landlords, pension stakeholders or litigants may call for a more tailored court-supervised framework.
- Does the company need to stay a debtor in possession, and can it fund that? If keeping control is essential, a proposal or a CCAA filing usually fits better than a receivership. But possession still has to be paid for: payroll, suppliers and rent continue, and DIP financing may be needed to bridge the process.
- What does the business need the process to do? Does it need a stay quickly? Does it need DIP financing, court directions, a sale process or the ability to address agreements? The proper approach depends on specific statutory powers and the court’s orders.
- Will secured creditors support the plan? Their support can be central to continued operations, especially if the company needs new or continuing credit. The fact that creditor-initiated CCAA proceedings have drawn attention is one consideration, not a reason by itself to choose CCAA. I discussed that development in “The Debtor Loses The Driver’s Seat: The Rise of Creditor-Launched CCAA Proceedings”. For this decision, the practical question is whether the company has the creditor support and financing needed for a workable plan.
- What is the cost trajectory? CCAA proceedings are typically more expensive because of court time, monitor fees, and company and stakeholder legal and financial advisers. A proposal has costs too, but may be more proportionate for a smaller company with a simpler creditor structure. Costs vary substantially with contested issues, duration and work required.
- What are the employee, lease and CRA pressures? Identify payroll, employee source deductions, pension contributions and rent arrears promptly. Statutory claims and payment requirements may affect what a plan can do. Do not assume a stay removes the need to remit current payroll deductions or pay for ongoing services.
- Are there cross-border needs? If a restructuring or assets span jurisdictions, ask counsel whether recognition, coordination or related court relief is needed. The CCAA’s Part IV framework may be relevant, but it does not make every international issue automatic.
What owners are often surprised to learn is that the route is not simply “small debt means proposal, large debt means CCAA.” Complexity, timing, cash and creditor dynamics can change the analysis. The right process is the one that gives a credible plan the legal tools it needs without burdening the company with unnecessary expense.
How do the routes compare?
The table is a starting point, not a substitute for advice on a particular corporation, its debt and security documents, or creditor rights.
| Decision point | Division I Proposal | CCAA | Informal workout | Receivership | Typical fit | Main caution |
|---|---|---|---|---|---|---|
| What it is | Formal BIA compromise with creditors | Court-supervised compromise or arrangement | Private negotiated changes to debt or payment terms | Appointment of a receiver to take control of specified property or the business | Restructuring a business that can continue | A process cannot make an unviable business viable |
| Who initiates | Usually the insolvent company, filing through an LIT | Company or, in appropriate circumstances, another interested applicant seeking court relief | Company and participating creditors by agreement | Often a secured creditor under its rights or a court order | A business able to negotiate or propose a plan | The company may not control the timing of enforcement or court action |
| Debt threshold | No statutory minimum debt threshold | Claims must generally be more than $5 million; affiliated-company claims may count together | No statutory threshold | No CCAA threshold | A proposal for many small and mid-sized firms | Confirm threshold and eligibility before planning a CCAA filing |
| Debtor in possession? | Yes. Management continues to operate; the LIT administers the proposal | Yes. Company remains in possession, subject to court orders and monitor oversight; DIP financing may be available | Yes, but only as far as each creditor has agreed; no statutory stay by agreement alone | No. The receiver controls the assets or operations within the appointment’s scope | A company able to manage its business during restructuring | Formal court supervision does not mean management has unrestricted control |
| Creditor approval required | Unsecured creditors vote by class; statutory majority-in-number and two-thirds-in-value test; court approval follows | Majority in number and two-thirds in value in each class present and voting; court sanction follows | Agreement of participating creditors; no binding collective compromise without applicable legal process | Not a creditor vote on a plan; rights depend on appointment, security and court orders | A plan with sufficient creditor support | Voting thresholds and affected creditor classes require careful review |
| Typical cost | Moderate relative to CCAA, but case-specific | Typically higher: monitor, court, legal and financial adviser costs | Often lower initially; negotiation and documentation still cost money | Paid from assets or as ordered; scope and duration drive cost | A process proportionate to the company’s available cash and complexity | Low upfront expense can be offset by delay or creditor action |
| Main risk | Rejection, refusal of court approval or missed deadline may lead to deemed bankruptcy | Expense and procedural complexity may overwhelm the available value | No automatic stay; a non-participating creditor may enforce rights | Loss of management control; sale or realization may be the outcome | Preserving value and a going concern where possible | A mismatch between route and business needs can destroy time, cash and options |
Scroll the table sideways to see every column. General information only. The appropriate route depends on the company’s facts, assets, liabilities, financing and creditors.
What are the risks of choosing the wrong route?
A Division I Proposal can be a poor fit if the company needs extensive court directions, complex creditor-class treatment, interim financing or a coordinated sale process that exceeds what the proposal structure can practically deliver. The proposal route also carries a serious failure consequence: rejection, refusal of court approval or missed statutory deadlines may result in a deemed assignment in bankruptcy.
On the other hand, putting CCAA-scale costs on a small company can consume the cash needed to keep the business operating. A formal route is not automatically better because it offers broader court supervision. The company needs to be able to fund its professional costs and ongoing operations while the process proceeds.
An informal workout may avoid some formal-process costs, but it does not automatically stay a creditor from enforcing its rights. Receivership is generally focused on a receiver’s control and realization of assets, rather than a debtor-led compromise. In some situations, a sale, receivership or orderly wind-down may preserve more value than a restructuring attempt.
The objective is not to choose the most impressive legal mechanism. It is to find a process that fits the company’s viability, financing, creditors and operating realities. Before avoidable choices narrow the remaining options.
What should directors do in the first 30 days?
The right work depends on urgency; an enforcement deadline can make the next 30 days much shorter. Still, this checklist helps directors build a clearer picture and make informed decisions.
- Build a reliable cash picture. Prepare a short-term, preferably weekly, cash-flow forecast. Identify the cash needed for payroll, suppliers, rent, utilities and tax remittances.
- Reconcile debt and claims. List creditors, balances, arrears, guarantees, security, litigation, leases and any disputed amounts. Note related or affiliated entities.
- Assess the business plan. Separate profitable products, customers and locations from loss-making activities. Test the assumptions behind proposed savings, revenue and new financing.
- Protect records and governance. Preserve accounting records, contracts, board minutes and communications. Hold properly documented board discussions and obtain legal advice on directors’ duties and personal exposure.
- Map creditor pressure. Record collection demands, enforcement notices, loan covenant concerns, supplier restrictions and any key creditor negotiations. Do not assume an informal discussion pauses legal rights.
- Identify sensitive obligations. Review employee pay, payroll deductions, source deductions, pension contributions, rent and ongoing supply costs. Continuing obligations deserve immediate attention.
- Speak with an LIT and restructuring counsel. Ask them to compare a Division I Proposal, CCAA, workout, sale or other available route against the company’s facts. Involve accounting and financial advisers as appropriate.
- Set decision points and funding. Determine how much cash is required to reach the next milestone, what support may be available, and what the board will do if the plan misses its targets.
A methodical first month will not remove every risk, but it can reduce confusion and help preserve options. That clarity matters to the company, its creditors, employees and the directors making difficult decisions.
What are common Frequently Asked Questions (FAQ) about Division I Proposals and CCAA?
What is a debtor in possession in Canada?
A debtor in possession is a company that keeps its assets and continues operating while it restructures under protection. In Canada, a company filing a Division I Proposal or a CCAA proceeding generally remains in possession. A receivership or a bankruptcy takes possession away, because the receiver or trustee takes control of the assets in question.
Is there a Chapter 11 equivalent in Canada?
Not as such. Canada has no single debtor-in-possession statute matching Chapter 11. The closest functional equivalents are the CCAA and, for smaller companies, a Division I Proposal. Both generally leave management in place, but each has its own threshold, process and creditor-voting rules.
What is DIP financing, and can my Ontario company get it?
DIP financing is debtor-in-possession financing: new money advanced to a company while it restructures. Under the CCAA, the court can authorize interim financing and grant the lender a charge over company assets, sometimes ahead of existing security. Whether it is available depends on the lender’s assessment, the company’s prospects and what the court will approve. It is not automatic, and it is not free money: the new debt ranks against the assets.
What is the difference between a Division I Proposal and a CCAA filing?
A Division I Proposal is made under Part III, Division I of the BIA and filed through an LIT. A CCAA restructuring is a court-supervised process with a monitor and a stay granted by court order. The CCAA is generally intended for companies with claims exceeding $5 million and more complex restructurings.
What is the $5 million threshold in the CCAA?
Section 3 of the CCAA generally requires total claims of more than $5 million against the debtor company or affiliated debtor companies. Claims are determined under section 20. It is not simply a test of one company’s headline debt balance.
Can a company with less than $5 million in debt use the CCAA?
A company must meet the CCAA’s statutory threshold to use the Act. Because affiliated-company claims may be aggregated, a company with less than $5 million in its own debt should obtain advice before assuming it is ineligible. A Division I Proposal has no minimum debt threshold.
What happens if creditors reject a Division I Proposal?
If creditors reject the proposal, the debtor is deemed to have made an assignment in bankruptcy. A court’s refusal to approve the proposal has a similar consequence. The company should understand the voting prospects and potential outcomes before filing.
Who controls the company during a proposal or CCAA?
Under a Division I Proposal, management continues running the company while the LIT administers the process. In a CCAA case, management remains in place, but the monitor oversees and reports on the company’s financial affairs, and the court’s orders may limit management’s decisions. A monitor is not the same as a receiver. Unless the court orders otherwise, the Licensed Insolvency Trustee is not making any management decisions or exerting control in a debtor in possession restructuring.
Does filing a proposal or CCAA stop CRA collections?
A statutory stay may restrict certain collection steps, but its scope, exceptions and timing matter. Under the CCAA, the court may make an order addressing certain federal and provincial Crown collection rights, subject to statutory conditions. Neither process should be treated as a reason to stop current payroll remittances or ignore tax obligations. Obtain advice specific to the company.
How long does each process take?
There is no single timetable. A Division I Proposal has statutory deadlines, including the initial NOI period, with possible extensions subject to the BIA. CCAA timing depends on the court’s calendar and orders, the restructuring steps, creditor negotiations and any sale or litigation process. Management in a debtor in possession restructuring will be making changes to business systems and practices, which takes time. Creditor meetings and court approval add further milestones. Ask advisers to map a realistic timeline for the actual case.
What does each route cost?
Costs depend on the company’s size, records, creditor disputes, financing needs, court activity and process length. A debtor in possession CCAA case is typically more expensive because it involves a monitor, court hearings and professional advisers. A Division I Proposal may be more proportionate for a simpler restructuring, but there is no universal fee. Request a case-specific budget, including ongoing operations and professional costs.
Sources and further reading
- Bankruptcy and Insolvency Act, including sections 50, 50.4, 54, 62, 69 and 69.1
- Companies’ Creditors Arrangement Act, including sections 3, 6, 11.02, 11.2, 11.7 and Part IV
- Office of the Superintendent of Bankruptcy, Insolvency Statistics in Canada-2025: the OSB reported 1,126 business proposals and 3,714 business bankruptcies in 2025. These figures describe filings, not the likelihood that a particular proposal will succeed.
- Related company reading: Corporate bankruptcy in Canada and contact our team.
Starting Over, Starting Now
Don’t let financial uncertainty dictate your company’s future. If your business is struggling with debt, you are losing sleep, or facing legal action, contact Ira Smith Trustee & Receiver Inc. today.
We offer a free, confidential consultation to discuss your situation, explain your options in plain language, and help you develop a clear, actionable plan. Our team of Licensed Insolvency Trustees is dedicated to providing the compassionate, professional support you need to regain control and move towards a sustainable outcome.
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Ira Smith Trustee & Receiver Inc. is licensed by the Office of the Superintendent of Bankruptcy. Ira and Brandon Smith are members of the Canadian Association of Insolvency and Restructuring Professionals.
Disclaimer: This debtor in possession analysis is for educational purposes only and is based on the cited sources and professional expertise as a Licensed Insolvency Trustee. The information provided does not constitute legal or financial advice for your specific circumstances. Every situation is unique; the outcomes discussed may not apply to your particular case. Please contact Ira Smith Trustee & Receiver Inc. to discuss your specific needs.
About the Author:
Ira Smith is President of Ira Smith Trustee & Receiver Inc., a CPA CA and Licensed Insolvency Trustee serving the Greater Toronto Area. Ira works with business owners and directors facing financial distress, helping them assess debtor in possession restructuring options and make practical decisions about their companies’ futures.
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