What costs come with buying a business out of receivership in Canada?
Beyond the price, a receivership purchase can raise GST/HST questions, the question of who pays to cure defaults on contracts a court assigns to you, and your own adviser fees. No source we read sets a buyer fee schedule, so ask the receiver in writing which costs fall on the buyer.
The price is only one line in a receivership purchase. Federal tax and insolvency law touch the buyer’s costs in a few specific places, and this page names where they arise rather than how much they are. The general list of costs for any small business purchase is on a separate page, linked below. Everything here is a question to put to the receiver, your lawyer and your accountant.
GST/HST questions
Under s.266(2) of the Excise Tax Act, a receiver with authority to manage, operate, liquidate or wind up a business is deemed to be the debtor’s agent, and supplies it makes or receives in respect of the relevant assets are deemed made or received by the receiver as agent. Ask the receiver whether tax applies to your purchase and who collects it.
The business-sale election
Section 167 of the Excise Tax Act lets a supplier and a recipient make a joint election in prescribed form on a supply of a business or part of a business, where under the agreement the recipient is acquiring ownership, possession or use of all or substantially all of the property that can reasonably be regarded as necessary to carry on the business. It is not available where the supplier is a registrant and the recipient is not, and other conditions apply. Whether your purchase qualifies is a question for an accountant.
Curing defaults on assigned contracts
If a court assigns a contract to you in a bankruptcy (BIA s.84.1) or a CCAA proceeding (s.11.3), it may not make the order unless satisfied that all monetary defaults under the agreement will be remedied on or before the day it fixes. Excepted are defaults arising only from the bankruptcy (BIA) or the start of CCAA proceedings, the insolvency, or a failure to perform a non-monetary obligation. Neither section says who pays, so read the order and the sale agreement.
What the receiver reports
Under s.246(3) of the BIA a receiver prepares a final report and a statement of accounts. That is the receiver’s accounting, not a price list for buyers, so ask which of its costs, if any, the sale agreement passes to you. For the wider checklist, see costs beyond price when buying a small business.
Related reading
5 pages on the same subject, grouped by topic.
Buying
- Expert answerWhat costs should I expect when buying a small business in Canada beyond the price?
- Expert answerCan I buy a business that is in receivership?
- Expert answerHow does a vesting order work when buying a business in receivership?
- Expert answerHow do I find out what share of a chiropractic clinic’s patients come from word of mouth?
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of Canada (Department of Justice)GovernmentExcise Tax Act, section 266 (receivers)
- 02Government of Canada (Department of Justice)GovernmentExcise Tax Act, section 167 (supply of assets of business)
- 03Government of Canada (Department of Justice)GovernmentBankruptcy and Insolvency Act, section 84.1 (assignment of agreements)
- 04Government of Canada (Department of Justice)GovernmentCompanies’ Creditors Arrangement Act, section 11.3 (assignment of agreements)
- 05Government of Canada (Department of Justice)GovernmentBankruptcy and Insolvency Act, section 246 (receiver’s statement, interim reports, final report and statement of accounts)
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