Can I Be Held Liable After I Sell My Business in Ontario?
Yes, you can be held liable after closing, mainly through the promises you make in the sale agreement. Claims for breach of representations or indemnity are generally subject to Ontario's Limitations Act, 2002, under which a proceeding cannot be started after the second anniversary of the day the claim was discovered, unless the Act provides otherwise.
Parties to a business agreement made on or after October 19, 2006 can vary or exclude those limitation periods, so your agreement may set its own survival period for representations and warranties. If you take back a loan from the buyer, registering a financing statement under the Personal Property Security Act perfects your security interest, and an unregistered one may leave you ranking as an unsecured creditor if the buyer becomes insolvent.
Where the buyer keeps your employees, the buyer is treated as the employer and their length of service carries over, unless the buyer hires them more than 13 weeks after the earlier of their last day with you or the day of the sale. Non-compete wording and what you owe employees the buyer does not hire depend on the facts, so have a lawyer review them before you sign.
Key takeaways
- A claim generally cannot be started after the second anniversary of the day it was discovered, and no proceeding can be started after the 15th anniversary of the act or omission it is based on.
- Your agreement may set its own survival period for representations and warranties, so read that clause before you sign.
- If you register security for a vendor take-back loan, you must renew it before it expires if the loan is still outstanding.
- If the buyer defaults, a secured party that intends to dispose of collateral must generally give at least fifteen days' written notice to the debtor and certain other interested persons, subject to the exception in section 63(6) of the Personal Property Security Act.