Do indemnities survive if the buyer amalgamates the target company?

A seller who gave an indemnity may wonder whether the buyer can shake it loose by merging the company it bought into another entity. The corporate statutes point the other way. Amalgamation joins corporations into one. It is not a sale of your shares and it does not cancel contracts. The buyer’s side changes shape, but your promise is still a contract. This page covers the federal and Ontario Acts; other provinces have their own corporate statutes.

What the statutes say

Under the Canada Business Corporations Act (CBCA), on the date shown in the certificate of amalgamation the property of each amalgamating corporation continues to be the property of the amalgamated corporation, which continues to be liable for their obligations, and an existing cause of action or claim is unaffected (s.186). Ontario’s Business Corporations Act (OBCA) says the amalgamated corporation possesses all the property, rights, privileges and franchises of each amalgamating corporation and is subject to their liabilities, contracts and debts (s.179). On those terms, a right to be indemnified held by an amalgamating company would continue in the amalgamated company; have a lawyer confirm how that applies to your agreement.

The buyer may need no one’s approval

Corporations Canada’s guide says a short-form amalgamation is approved by a directors’ resolution and does not need shareholder approval. A vertical short-form amalgamation involves a holding corporation and wholly-owned subsidiaries. A buyer that owns all the shares of the target after closing may be in that position, and you would not get a vote. Your protection is the drafting of the indemnity, not a say in the amalgamation. The related answer on what happens when a buyer amalgamates its holding company covers the mechanics.

What to check in the indemnity

• Who is the indemnified party, and does the definition include successors and assigns?
• Does the clause measure loss by “the Company”, and does it still work if that company no longer exists on its own?
• Does any assignment or change-of-control wording apply to an amalgamation?
• What are the survival period, the cap and the notice steps? The Acts do not change those terms.

Ask your lawyer whether the agreement should require the buyer to tell you if it amalgamates the target, and to confirm that the indemnity continues. The guide to representations, warranties and indemnities explains how these clauses fit together.