Freight forwarder due diligence

Once a letter of intent is signed, the work shifts from asking to proving. A forwarder’s paper trail can include carrier agreements, client files, customs entries, claims, and any financing behind its receivables. This guide covers what to request, which registries to search and which findings should stop a deal until they are explained. It is written for the buyer, but a seller who knows these requests can answer them before they are made. For the wider framework, see what to check before buying a business.

Search the registries before you rely on the seller

British Columbia, Ontario and Alberta each describe their own personal property registry; ask your lawyer which other provinces’ registries to search. British Columbia’s Personal Property Registry records security interests and liens against personal property belonging to businesses, and the province describes personal property as including intangible items. Ontario’s PPSR system, on Access Now, lets people register a notice of security interest on personal property used as collateral. Alberta tells people to search its registry before buying items that are personal property, which may be registered as a lien. Search the seller’s exact legal name and every other name it has used, in each province where it operates. Keep a dated copy of each result, and repeat the searches shortly before closing in case anything has been registered since.

Look for factored invoices

Treadstone Associates’ article on freight factoring, written for carriers, explains that the factor registers in the personal property registry, so the registration appears on any search a lender or acquirer runs. It also describes notice of assignment as behind almost every factoring problem a small carrier has: if a broker pays the carrier directly because nobody sent the notice, the carrier now owes that money to the factor. If a forwarder has sold any invoices, ask for the agreement, the list of assigned accounts and evidence that the notices went out. Ask how the factor’s claim ends at closing.

Test the customs and claims files

CBSA’s guide describes the importer’s steps: classification, value for duty, a declaration to have goods released, payment of duties and taxes, and corrections or notices of adjustment afterwards. Ask for a sample of recent entries, any adjustment notices and how they were resolved, and who signed for the client. Then take the claims file. List every claim for cargo loss, damage or a wrong declaration with its date, amount and outcome, and the insurance that responded. A claim that threatens the balance sheet, or a pattern across the same lane, is a finding for your lawyer.

Confirm what carries over

Read every carrier and airline agreement for assignment and change-of-control language, repricing rights and credit terms. Ask the body behind each accreditation or registration what notice a change in ownership requires, and get its answer in writing. Check that the records match: the CRA’s records page explains what businesses must keep, including what GST/HST registrants and employers must keep. PIPEDA section 7.2 lets parties to a prospective business transaction use and disclose personal information without the individual’s knowledge or consent if its conditions are met, in addition to the circumstances in subsections 7(2) and (3); one condition is that the information is necessary to decide whether to proceed and to complete the deal, so keep the data room to what is needed. Ask also for the insurance policies covering cargo and liability, the claims history under each, and the insurer’s written answer on whether cover continues after a change of ownership, since that is a question for the insurer rather than the seller.

Ask for the documents in a sensible order

Start with what lets you test the rest: financial statements, margin by client and lane, and the legal name and every trade name. Then request the carrier and airline agreements, the customs records and the claims file. Request the staff list and any employment or confidentiality terms last, once you know the business is worth the effort. Keep a log of what you asked for, what arrived and what is outstanding, because a gap in the log is a prompt for a direct question to the seller’s lawyer.

Findings that should stop the deal until explained

Treat these as stop-points rather than negotiating points: a registered lien the seller did not disclose; a factoring agreement that was never mentioned; open claims with no insurer response; a carrier agreement that ends or reprices on a change of ownership; an accreditation or registration with a gap in its standing; customs adjustments that repeat on the same client; and margin by client that does not reconcile to the financial statements. Each can have an innocent explanation, so ask for it in writing and have your lawyer decide what it means for the agreement.

• Registry search results in each relevant province, under every name the seller has used.
• Any factoring or invoice-financing agreement, assigned account list and notices of assignment.
• Carrier and airline agreements, with assignment, change-of-control and repricing clauses flagged.
• A sample of customs entries, adjustment notices and the claims file with outcomes and insurer responses.
• Written confirmation from each accrediting or registering body of what a change of ownership requires.