How can I structure a deal where the seller keeps the receivables?

In an asset purchase the parties choose what transfers. A buyer can leave accounts receivable with the seller, who then collects what customers already owe for work done before closing. The deal works only if the agreement is specific about the money that will keep arriving after closing, and about who has a claim on it.

Write the exclusion into the agreement

Name receivables as an excluded asset, with a cut-off date and a definition of which invoices count. Then settle what happens when a customer pays the buyer instead of the seller. One option is a duty to hold and forward such payments. Whatever you choose, state the time limit and how customers who dispute an invoice are handled. Also decide whether the buyer starts with no receivables and needs funds to carry the business until its own invoices are paid.

Check who else claims the accounts

If the seller has pledged receivables to a lender, that lender’s rights matter even though the buyer is not taking them. Under section 244 of the Bankruptcy and Insolvency Act, a secured creditor that intends to enforce security on all or substantially all of an insolvent person’s inventory, accounts receivable or other business property must send a notice first. Ontario’s Personal Property Security Act, section 40(2), says an account debtor may pay the assignor until it receives notice, reasonably identifying the relevant rights, that the account has been assigned. Outside Ontario, check the seller’s province’s own statute and search its registry.

Compare with buying the receivables

If the buyer buys them instead, section 22 of the Income Tax Act can apply: it covers a seller who sells all or substantially all the property used in the business, including outstanding debts, to a purchaser who proposes to continue the business, where both jointly execute an election in prescribed form. Under section 22(2), an election made for section 22(1) must contain a statement by the vendor and purchaser jointly of the consideration paid for the debts sold, and that statement is binding on both, subject to s. 69(1), as against the Minister. Section 22(1) also allows the vendor a deduction equal to the difference between the debts’ face value and the consideration paid, and requires the purchaser to include the same amount in income. Ask the seller’s accountant to confirm the treatment for the structure you choose.

For how the day itself runs, see what actually happens on closing day and the closing day checklist.