What employee liabilities come with a distressed business?

Buying a business in difficulty is often the best value available and the employee liabilities are where the hidden cost sits. The ordinary rules about what transfers are not a reliable guide once insolvency is involved.

Wage claims are not ordinary debt

Unpaid wages and vacation pay are treated preferentially in insolvency, and there are federal and provincial mechanisms directed at recovering them. A buyer assuming these rank alongside unsecured trade creditors is assuming something favourable that may not hold. Establish what is owed and to whom before pricing the deal.

A receiver or trustee sale is structurally different

Assets sold under a court-supervised process come with the protections and the limits of that process. The vesting order determines what passes and what is left behind, the seller gives few or no warranties, and the usual successor-employer analysis applies differently. A buyer should be reading the order, not only the agreement.

Hiring the workforce is a decision with consequences

Taking on the former employees is often operationally necessary and can carry their prior service for certain purposes, which affects future termination exposure. Declining to hire leaves the insolvent estate with the termination liability it may not be able to meet. Neither answer is free, and the choice should be made with advice rather than by default.

What to ask for before committing

A schedule of wages, vacation and benefit arrears; any employment standards or human rights claims in progress; the workplace-insurance account status; and the proposed vesting order in draft. Diligence is harder here because the seller may no longer be cooperative, which makes the court file and the regulators the better sources.