Child care licence on a change of ownership in Quebec

In Québec, a childcare centre or day care centre permit is issued to a permit holder, whose name it states. The Educational Childcare Act says a permit is not transferable, so a buyer cannot simply take over the seller’s permit at closing. What the buyer needs depends on how the deal is built. If the buyer purchases assets, it becomes a permit applicant. If it purchases the shares of the company that holds the permit, the holder stays the same, but the Act then requires notice to the Minister and gives the Minister powers over some share transfers. The Act calls it a permit, which is what other provinces may call a licence. The Ministère de la Famille administers the regime.

The permit does not travel with the business

Under the Act, and subject to the exceptions it lists, no one may, personally or through another, provide or offer to provide childcare services to a child covered by the Act in return for a contribution unless the person holds a childcare centre permit or a day care centre permit, or is a home educational childcare provider recognized by an accredited coordinating office. The permit states the holder’s name and address, and the holder may not care for more children than the number stated on it. The Act also says a permit holder may not entrust the administration or management of the facility to a third party that is a legal person. A deal in which a corporate manager would run the facility for the buyer between signing and approval needs checking against that rule before anyone signs.

Buying the assets: the buyer applies

Because the permit cannot be transferred, an asset buyer is a permit applicant. The Ministère de la Famille’s page on opening a non-subsidized day care says the applicant files a permit application with the ministry and pays the required fees. The Act has one provision aimed at this situation: a day care centre permit applicant who acquires the assets of a permit holder is deemed to meet the condition in subparagraph 1.2 of section 11 (showing the feasibility, relevance and quality of the project), provided the applicant continues to provide childcare on the conditions stated on the seller’s permit under paragraphs 2 and 3 of section 12. For a non-profit childcare centre permit, confirm with the Ministère what applies. Among the grounds in section 26 of the Educational Childcare Act, the Minister may refuse a permit if the applicant, or a director or shareholder of the applicant, lacks an attestation that no impediment exists, or held a permit that was revoked or not renewed in the five years before the application. The buyer’s people are checked, not only the business.

Subsidized spaces are a separate question

The Ministère’s page distinguishes the two routes. Opening a CPE or a subsidized day care requires an application within a call for projects to create subsidized spaces, while a non-subsidized day care applies for a permit. The Act adds that where a permit holder ceases to operate in one or more facilities, the Minister recovers, if applicable, the subsidized childcare spaces assigned to it. It also says a day care permit applicant who has the Minister’s authorization to develop subsidized spaces may not, except for exceptional reasons and with the Minister’s authorization, enter into an agreement for the sale or transfer of all or some of its shares to a new shareholder, or for an amalgamation or merger, before its permit is issued. If the business holds subsidized spaces, ask the Ministère in writing, before signing, what happens to them on this particular sale.

Buying the shares: the holder stays, but notice follows

In a share purchase the permit holder is unchanged. The Educational Childcare Act still requires a permit holder to notify the Minister in writing, within 15 days, of a change of name or address and, for a legal person, of a change of director or shareholder, and to provide the information required by regulation about each new director or shareholder. On a change of director, the Educational Childcare Act gives the holder 10 days from the change to apply for an investigation establishing that no impediment exists for that director. For a day care centre permit holder, the Minister may suspend, revoke or refuse to renew the permit when shares carrying the voting-rights threshold set by section 28.1 are transferred and the new shareholder falls within the grounds it lists. One ground is already holding that block of voting shares in another day care permit holder whose subsidy the Minister has cancelled, reduced or suspended under section 97. Where a shareholder’s transfer was split across two or more transactions that resulted in evading the section, the Minister must suspend, revoke or refuse to renew the permit on those grounds.

Registers and the closing sequence

The notice to the Minister is not the only filing. Quebec’s Act respecting the legal publicity of enterprises requires a registrant to file an updating declaration within 30 days after any change to the information the register holds, unless a shorter period is prescribed by law, and that information includes the directors and the largest shareholders by votes. The two deadlines belong to different statutes and different filings, so a closing checklist needs both. For the corporate side, see how to update corporate records after a share purchase. For leases and supplier contracts that do not follow assets automatically, see do contracts and leases transfer in an asset purchase.

If operations stop during the sale

The Act lets the Minister suspend, revoke or refuse to renew a permit when the holder ceases to operate, so a gap between the seller closing and the buyer opening is not neutral. The Educational Childcare Act also requires a permit holder, at least 90 days before ceasing to operate in one or more facilities, to notify the Minister and the parents in writing and to tell the Minister the number and age of the children receiving care. For exceptional and temporary cases, where a permit holder ceases operations in a facility or is about to, the Minister may authorize a childcare centre permit applicant or holder to keep providing care to children who would otherwise have none, at that facility’s address or another address the Minister determines, and issues a temporary permit to an applicant for that purpose. The Act also says that when a childcare centre permit holder ceases to operate, is dissolved or has its permit revoked, the assets it acquired out of subsidies are transferred to a non-profit legal person with similar objects designated by the Minister. Ask which of the seller’s assets were bought with subsidies before pricing them into the deal.

Questions for the Ministère before signing

• Is the deal an asset purchase or a share purchase, and what does the Ministère require for that structure?
• Do the facility address, number of children and age classes on the permit match what the buyer plans to operate? The Act requires a childcare centre permit holder to obtain written authorization before increasing the number of children beyond the maximum on the permit or altering a facility, and a day care centre permit holder to obtain it before increasing the number of children.
• When does the permit expire? The Educational Childcare Act says a permit is issued or renewed for five years, or less, and that an unrenewed permit stays in force for no more than 120 days while a renewal decision is pending.
• Does the buyer, and each director and shareholder, hold or qualify for an attestation that no impediment exists?
• Are any spaces subsidized, and what does the Ministère say will happen to them on this sale?