Can I buy a business that is in receivership?

Yes, businesses are bought out of receivership, and a receiver exists partly to sell. The difference from an ordinary purchase is who sits across the table. The former owner no longer controls the assets, a receiver does, and you buy what the receiver has authority to sell, not what you assume the business includes.

Who the receiver is

Under the federal Bankruptcy and Insolvency Act (BIA), a court can appoint a receiver on a secured creditor’s application, and someone who takes possession or control under a security agreement is also a receiver. Only a trustee under the Act can be appointed. The Act requires a receiver to act honestly and in good faith and to deal with the property in a commercially reasonable manner. The Office of the Superintendent of Bankruptcy supervises receiverships.

What you can actually buy

A court-appointed receiver may take possession of all or substantially all of the inventory, accounts receivable or other property the debtor acquired for or used in its business, exercise whatever control over the property and the business the court considers advisable, and take any other action the court considers advisable. The court sets those powers, so ask to see the appointment order or the security agreement and compare its scope with the assets in your offer. A receiver can also ask the court for directions on any provision of that part of the Act.

What happens to the staff

Employment rules still apply to the people on site. British Columbia’s Employment Standards Branch says employment is treated as continuous when a business goes into receivership, and that employees who keep working after a sale without a shutdown become the new employer’s employees. Other provinces set their own rules. Buying from a trustee and from a receiver explains who you are dealing with in each case.

Before you bid

• Read the order or security agreement to see what the receiver controls.
• Ask whether the sale needs court approval, and what the approval order would clear from the assets.
• Check licensed intellectual property. When a receiver sells intellectual property that the debtor licensed to someone else, the Act says that licensee’s right to use it is not affected.