Can dissolving my old company after a sale trigger a lease default?

A lease is a contract with the company that signed it. Selling the business does not automatically move the lease to the buyer, and it does not end the old company’s obligations. Whether the old company stays bound after an assignment, and what happens if the tenant ceases to exist, turns on the lease, any consent and any release the landlord signed. Read the lease and any consent before you file anything.

What the CBCA requires before dissolution

Corporations Canada’s guide says a corporation can be dissolved only when its property has been distributed and its liabilities have been discharged. Once a certificate of intent to dissolve is issued, the corporation must cease to carry on business except as needed for the liquidation (s.211(6)), and the guide says it must notify creditors of its intent to dissolve. If the old company is still bound by a lease, ask your lawyer whether that obligation must be dealt with first. This describes companies under the CBCA. For a provincially incorporated company, check that province’s statute.

What happens after dissolution

Dissolution does not necessarily end a landlord’s claim. Under s.226(2) of the CBCA, a civil action started before dissolution may be continued as if the corporation had not been dissolved, and an action may be brought within two years after dissolution as if it had not been dissolved. Property that would have been available to satisfy a judgment remains available. Under s.226(4), a shareholder to whom property was distributed is liable to a person with such a claim, to the extent of the amount received, and an action to enforce that liability may be brought within two years after dissolution.

What to confirm before you dissolve

BDC’s guide for sellers includes reviewing contracts, leases and business agreements and updating them if needed. For the lease, ask your lawyer to confirm:

• that the lease was assigned to the buyer in writing and that the landlord consented
• that the landlord released the old company, and any guarantors, in writing
• what the lease says if the tenant dissolves or otherwise ceases to exist
• whether you or other shareholders gave personal guarantees that outlast the company

If the landlord has not yet agreed to the assignment, see can my landlord refuse to assign my lease. For how contracts move in an asset sale, see do contracts and leases transfer in an asset purchase.