- In an insolvency, the company's directors are generally no longer the ones deciding whether and how to sell.
- The practical effect is that a buyer in a BIA sale carries more of the diligence burden and gets fewer contractual promises to fall back on if something turns out to be wrong.
- Many insolvency asset sales are approved by a court order that "vests" the purchased assets in the buyer, typically free and clear of the prior liens, charges, and claims that attached…
Buying the assets of a struggling business can be a genuine opportunity — equipment, inventory, a customer list, or a lease at a fraction of its going-concern value. But once a company is formally insolvent, the deal usually isn't with the owner you'd expect. It's with a licensed insolvency trustee or a court-appointed receiver, acting under the federal Bankruptcy and Insolvency Act ("BIA"), and the process looks meaningfully different from an ordinary Ontario asset purchase.
Knowing what changes — and what doesn't — helps you move quickly without missing something that matters.
Who You're Actually Buying From
In an insolvency, the company's directors are generally no longer the ones deciding whether and how to sell. Depending on the proceeding, you may instead be dealing with:
- A licensed insolvency trustee administering a bankruptcy or a proposal
- A court-appointed receiver, brought in (often at a secured lender's request) to take control of and sell the company's assets
- The insolvent company itself, but only where it remains in some form of court-supervised proposal process
Each of these actors has a duty to maximize value for creditors as a whole — not to get the seller the best personal outcome, and not to do the buyer any favours. That changes the tone of the negotiation from the outset.
How This Differs From an Ordinary Asset Purchase
| Feature | Ordinary asset purchase | Insolvency (BIA) sale |
|---|---|---|
| Seller's incentive | Maximize price for the owner | Maximize recovery for creditors generally |
| Representations & warranties | Standard, negotiated | Typically minimal or none — sold "as is, where is" |
| Court involvement | None required | Often requires court approval of the sale and a vesting order |
| Timeline | Set by the parties | Often driven by the insolvency process and creditor deadlines |
| Diligence support from seller | Seller cooperates and discloses | Trustee/receiver has limited knowledge of the business's history |
The practical effect is that a buyer in a BIA sale carries more of the diligence burden and gets fewer contractual promises to fall back on if something turns out to be wrong.
The Vesting Order — What It Does and Doesn't Do
Many insolvency asset sales are approved by a court order that "vests" the purchased assets in the buyer, typically free and clear of the prior liens, charges, and claims that attached to them in the seller's hands (subject to anything the order specifically preserves). This is a valuable protection — it's a large part of why buyers are willing to transact with a trustee or receiver at all.
It's important to understand what it doesn't do, though. A vesting order generally deals with claims against the assets being purchased as of the sale. It doesn't retroactively clean up problems the buyer creates going forward, and it doesn't necessarily extend to every conceivable claim — the specific wording of the order, and what it preserves or excludes, matters enormously. Read the actual order and the underlying sale approval materials, not just a summary of it.
Employees, Contracts, and Leases
Insolvency sales raise their own version of questions that come up in any asset deal, often with sharper edges:
- Employees are frequently terminated by the trustee or receiver before or at closing, and the buyer decides separately whether, and on what terms, to offer employment to any of them. Whether Ontario's continuity-of-employment rules under the Employment Standards Act, 2000 apply to a particular insolvency hire-back is a fact-specific question that deserves its own legal review — don't assume either way.
- Leases the insolvent company holds may need separate landlord consent or a court-approved assignment process before you can step into them.
- Contracts with suppliers or customers may or may not be assignable, and some counterparties may treat the insolvency itself as a trigger to walk away.
Diligence Considerations Specific to an Insolvency Purchase
- [ ] Confirm exactly which assets are included and which are excluded — insolvency sale descriptions can be narrower than they first appear
- [ ] Check what encumbrances, if any, the proposed vesting order preserves rather than extinguishes
- [ ] Confirm the sale has (or will have) the necessary court approval before you rely on it as final
- [ ] Move quickly on financing — insolvency timelines are often compressed and less flexible than an ordinary deal
- [ ] Get your own valuation; don't rely on the trustee's or receiver's numbers as a substitute
- [ ] Have a lawyer review the sale approval materials and draft order, not just the asset purchase agreement
Frequently asked questions
Do I need court approval to buy assets from a bankrupt company?
Often yes, particularly for a sale of significant assets — many insolvency asset sales are structured to require court approval and a vesting order before closing. Whether your specific transaction needs it depends on the proceeding.
Am I responsible for the insolvent company's old debts?
Generally, an asset purchase — including one from a trustee or receiver — does not make the buyer responsible for the seller's pre-existing debts unless you specifically agree to assume them, though liabilities tied directly to the assets (such as certain liens) may need to be addressed as part of the sale.
Can I negotiate directly with a trustee or receiver?
Yes. Trustees and receivers actively market and negotiate asset sales, though they're bound by their duty to creditors rather than to getting you the best deal.
Is a receivership sale different from a bankruptcy sale?
Both usually involve court-supervised processes and similar vesting-order mechanics, but they arise under different legal proceedings and can have different procedural requirements — treat each as its own process and confirm the specifics with a lawyer.
This is a business purchase or sale question
Start a file online — flat, published fees, reviewed by a licensed Ontario lawyer before a dollar is owed.