Should I search a personal guarantor’s bankruptcy record when buying a business?

A personal guarantor is a person who has promised to pay or perform if a business, or another party, does not. A buyer can end up relying on one when a seller’s owner guarantees a corporate seller’s promises after closing, or when a guarantee backs a contract the business is acquiring. The promise is only as good as the guarantor’s finances, so where it matters, a public-record search is a reasonable step.

What the federal record shows

Section 11.1 of the Bankruptcy and Insolvency Act requires the Superintendent of Bankruptcy to keep a public record of proposals and bankruptcies and, on request and payment of the prescribed fee, provide information in it. The Office of the Superintendent of Bankruptcy describes this as a public record of Bankruptcy and Insolvency Act and Companies’ Creditors Arrangement Act filings. A search shows whether the guarantor has made a proposal or gone bankrupt, not debts that never reached a formal process.

Why a bankruptcy matters to a guarantee

On a bankruptcy, section 71 passes the bankrupt’s property to the trustee, subject to the Act and to the rights of secured creditors, and section 69.3 stops creditors, subject to the exceptions it lists and until the trustee is discharged, from having any remedy against the debtor or their property for claims provable in bankruptcy, though under subsection 69.3(2), unless the court orders otherwise, secured creditors may still realize their security. Section 121 treats debts and liabilities, present or future, to which the bankrupt is subject on the day of bankruptcy, or may become subject to before discharge because of an obligation incurred earlier, as provable claims. A buyer holding a guarantee from a bankrupt person would generally be a creditor with a claim in the estate, not someone who can simply sue the guarantor.

Other searches to run alongside it

British Columbia’s Personal Property Registry records liens against personal property belonging to individuals and businesses, Alberta lets a searcher search by an individual debtor’s name, and New Brunswick says anyone can search its registry. Provinces keep their own, and how to run a PPSA registry search walks through one.

What a clean result does and does not mean

A search shows only what is on the record on the day it is run. A guarantor with no filing may still be unable to pay, and a filing can follow closing. Where the guarantee carries real weight, a lawyer can advise on asking the guarantor for current financial information, on taking security, and on repeating the search close to closing.