What due diligence applies when buying from an estate in receivership?

A business sold out of insolvency is usually sold by someone who did not run it. That changes diligence, because the seller is a professional administering assets rather than the person who built the business, so the buyer leans on records and public registers. This page covers sales by a trustee in bankruptcy or a receiver, not a sale by the executor of a deceased owner’s estate.

Confirm who is selling and with what authority

Under the Bankruptcy and Insolvency Act a receiver can be appointed by a court on a secured creditor’s application, or can take control under a security agreement. A trustee in bankruptcy is licensed and supervised by the Office of the Superintendent of Bankruptcy. Ask for the appointment documents. The Act requires a receiver to act honestly and in good faith and to deal with property in a commercially reasonable manner, which describes the process, not a promise about the business.

Search for registered claims

Search the provincial personal property registry for security interests against the assets. British Columbia’s registry records security interests and liens against personal property of businesses and individuals, and the results show who else claims the assets.

Check employee and premium exposure by province

The rules differ by province. British Columbia’s Employment Standards Branch says the purchaser of a bankrupt business is not liable for unpaid wages owed before the bankruptcy, and that when a trustee sells the business and employees continue, their rights under the Act are extinguished. Elsewhere a clearance can still matter: Alberta’s workers’ compensation board describes getting one as a responsibility when buying a business. Do not assume another province works like British Columbia.

Do not assume licences and contracts come along

Vancouver Coastal Health states that its food service permit is not transferable to a new owner. Treat permits, municipal licences and contracts as items to confirm one by one, and work out what must be applied for in your own name before you rely on the business being able to open. The pre-purchase checks answer lists the wider areas.