Can I buy a company that is in liquidation or insolvency in Canada?

More than one federal process can apply to an insolvent company, so the first step is to find out which process the company is in. Buying out of an insolvency is possible, but the debtor may not be free to simply sign and close. Federal insolvency law attaches conditions to selling assets, and the person you deal with may be a trustee, a receiver or the company itself under court supervision.

Which process is the company in?

The Office of the Superintendent of Bankruptcy describes bankruptcy under the Bankruptcy and Insolvency Act (BIA) as a formal process in which debtors who cannot meet their obligations sign over all of their assets, except those exempt by law, to a Licensed Insolvency Trustee. A proposal and a notice of intention are other BIA steps, and the Companies’ Creditors Arrangement Act (CCAA) is a separate statute. Ask for the filing that started the process and for the name of the trustee or monitor.

Court authorization for sales outside the ordinary course

Under BIA section 65.13(1), an insolvent person in respect of whom a notice of intention has been filed or a proposal has been filed may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court. For an individual carrying on a business, section 65.13(2) limits that authorization to assets acquired for or used in relation to the business. CCAA section 36(1) says the same of a debtor company in respect of which an order has been made under that Act. In these cases, ask whether your offer needs to be conditional on court approval. Both Acts list factors the court is to consider (BIA section 65.13(4), CCAA section 36(3)), and both require the applicant to give notice to the secured creditors likely to be affected by the sale (BIA section 65.13(3), CCAA section 36(2)).

Receivers

Under BIA section 243(1), and subject to the notice rule in section 243(1.1), a court may, on application by a secured creditor, appoint a receiver if it considers that just or convenient. Under section 243(4), only a trustee may be appointed as a receiver in that way. If you are buying from a receivership, ask the receiver what it is authorized to sell and whether a court order is needed to close.

Title, liens and the assets themselves still need checking, which is covered in how to check title and liens when buying from an insolvency. For the steps of an asset purchase through the BIA, see buying assets from an insolvent company.