What is a Notice of Intention NOI ? A Notice of Intention to Make a Proposal (commonly referred to as "NOI") is a procedure under the Bankruptcy and Insolvency Act (“BIA”) that allows financially troubled corporations the opportunity to restructure their affairs. It is often the first stage of a restructuring process under the BIA, which allows a company to restructure its financial affairs, through a formal Proposal. The NOI/Proposal provides an opportunity for a company (also known as a “Debtor”) to avoid Bankruptcy and allows the creditors to receive some form of compensation for amounts owing to them by the company.
The process begins with a company filing a NOI with the Official Receiver (a representative of the Office of the Superintendent of Bankruptcy) and the Courts. Once accepted, the company is granted an initial 30 days of protection (often referred to as the "Stay") from its creditors to enable the company to prepare its Proposal. The Stay against the creditors can be extended upon further application (by the company) to the Court.
Typically, the Court will continue the protection beyond the initial 30-day period if the company can demonstrate that it is likely that it will file a Proposal and an extension of the Stay is not materially prejudicial to the creditors, as a whole. The Stay can be extended for a period not exceeding six months from the date of filing the NOI. During the Stay period, the company will often continue operating, although it may commence restructuring activities at any time. If a company does not file a Proposal at the end of the Stay period, it is deemed to have made an assignment in Bankruptcy and a Licensed Insolvency Trustee is appointed to administer the Bankruptcy.
A Proposal Trustee is an independent third party who is appointed by the Official Receiver to assist the company with the filing of its NOI and/or Proposal and to monitor the company's ongoing operations during the Stay period. The Proposal Trustee’s monitoring duties include monitoring the business’ ongoing financial activities, reporting to the Court on any major events that might impact the viability of the company, assisting the company in the preparation of its Proposal, notifying the creditors of any meetings of creditors and tabulating the votes at these meetings. The Proposal Trustee will also prepare a report on the Proposal that is included in the mailing of the Proposal to creditors.
The Proposal is a formal agreement that the company presents to its creditors setting out how it intends to compromise and/or repay the debts owing at the time of the initial filing of the NOI/Proposal. There are no restrictions on what the Proposal can include. It is not uncommon to see the company offer to pay a percentage of the debt owing prior to the filing, either as a lump sum payment or payments over a period of time. Proposals can include an offer of shares of the company in exchange for the debt outstanding or a combination of cash and shares.
In order to be able to vote on the Proposal and receive any distribution under it, a Creditor must file a Proof of Claim with the Proposal Trustee. The Proof of Claim sets out what is owed to the Creditor and is reviewed by the Proposal Trustee and the company. Any discrepancies between the Creditor's Proof of Claim and the company's records are investigated by the company. Disputed claims are resolved in accordance with the framework set out in the BIA. A meeting of the creditors is called to vote on the Proposal. For the Proposal to be binding on each class of creditors, a majority of the proven creditors in that class, by number, together with 2/3 of the proven creditors in that class by dollar value, must vote to approve or accept the Proposal presented to them. If a class of creditors approves or accepts the Proposal, it is binding on all creditors within the class, subject to the Court's approval. Upon Court approval, the company continues forward as outlined under the Proposal until it has satisfied the requirements under the Proposal.
If a class of creditors rejects the proposal or the Court does not approve the Proposal, the company is deemed to have made an assignment in Bankruptcy and is automatically bankrupt.