Can the seller’s other creditors come after me if I buy only the assets?

Buyers choose an asset purchase to leave the seller’s debts behind, and mostly that works: the debts stay with the seller unless the agreement assumes them. A creditor’s rights do not all depend on who owes the debt, though. Three of them follow the assets or the transaction itself.

Creditors with security follow the asset

Under Ontario’s Personal Property Security Act, a security interest continues in the collateral after a sale unless the secured party expressly or impliedly authorized the sale free of the interest. A lender that registered its interest can therefore look to equipment or inventory in your hands, subject to exceptions such as the one for goods bought from a seller in the ordinary course of business. A registry search shows those interests, and the lender can be paid out and the registration discharged at closing. Other provinces run their own registries. See what a PPSA search is.

Some tax offices ask you to check first

British Columbia’s PST office tells purchasers to obtain a clearance certificate before buying a business, or before buying goods or an interest in a business in a bulk transaction. The certificate confirms the seller has paid all amounts owing under the relevant legislation, including penalties and interest. Other taxes and agencies have their own routines, so ask each whether a clearance is available.

A cheap sale can be challenged

The Bankruptcy and Insolvency Act defines a transfer at undervalue as a disposition for which no consideration is received or the consideration received is conspicuously less than the fair market value of what the debtor gave. If the seller later becomes bankrupt, a court can declare such a transfer void against the trustee, or order a party to it to pay the shortfall to the estate. Whether the buyer dealt at arm’s length matters, and the statute sets time limits your lawyer will check.