How does a vesting order work when buying a business in receivership?

When a receiver sells a business’s assets, ask whether the sale will be completed with a vesting order, a court order that vests an interest in property in the buyer. How it works depends on the court, the province and the exact wording of the order, so this page describes the legal footing and the checks a buyer can make. A lawyer should read the actual order.

Where the court’s power comes from

In Ontario, s.100 of the Courts of Justice Act says a court may by order vest in any person an interest in real or personal property that the court has authority to order be disposed of, encumbered or conveyed. Other provinces have their own court legislation and rules, so a purchase outside Ontario needs that province’s sources. The order sits on top of the purchase agreement. It does not replace it.

Why a receiver is selling

Under s.243(1) of the Bankruptcy and Insolvency Act, subject to the notice timing in s.243(1.1), on application by a secured creditor a court may appoint a receiver if it considers it just or convenient. The court may appoint the receiver to take possession of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by them, to exercise any control the court considers advisable over that property and the business, or to take any other action the court considers advisable. Under s.243(4), only a trustee may be appointed. Ask to see the court orders that set out what the receiver may do.

What an order does not automatically clear

Ask what the order says about existing security, and do not assume it covers everything. Section 65.13(7) of the Act, which deals with a sale by a debtor that has filed a notice of intention or a proposal, is one example in the Act: a court may authorize a sale free and clear of any security, charge or other restriction, and if it does, it must also order that other assets of the insolvent person or the proceeds of the sale be subject to a security, charge or other restriction in favour of the affected creditor. Under that provision, the creditor’s protection shifts to other assets or the proceeds.

Checks that remain yours

Before closing, search what is registered against the seller’s name. Ontario’s registrar issues a certificate under the Personal Property Security Act, which is proof of its contents in the absence of evidence to the contrary (s.43). Confirm that each significant asset belonged to the seller rather than a lessor, and that your agreement makes closing conditional on the order in a form you accept.