Making an Indemnification Claim After Closing an Ontario Business Sale

An indemnification clause reads simply enough in the purchase agreement: if a representation turns out to be false, the seller compensates the buyer for the loss. Actually collecting on that promise after closing is a more procedural exercise than most buyers expect — one with specific steps, specific deadlines, and specific dollar mechanics built into almost every agreement.

Here's how the process generally works, from spotting a covered loss to actually seeing money.

The Key Terms You'll Be Working With

Every one of these terms is individually negotiated, so the specifics live in your agreement — not in any general rule of thumb.

The Process, Step by Step

1. Confirm the Loss Is Actually Covered

Trace the loss back to a specific representation, warranty, covenant, or indemnity provision in the agreement. A loss with no textual home in the agreement generally isn't an indemnifiable claim, however unfair it feels.

2. Check the Survival Period

If the survival period for the relevant representation has already expired, the claim may be time-barred under the agreement itself — separate from any general limitation period under the law. This is worth checking before investing significant time building the rest of the claim.

3. Deliver Formal Notice

Most agreements require written notice within a set process — describing the claim, the representation or provision it relates to, and (where known) the estimated amount. Follow the notice mechanics in the agreement precisely, including how and where notice must be delivered.

4. Quantify the Loss

Assemble the documentation that supports the amount you're claiming — invoices, financial records, expert reports where needed. Vague or unsupported claims are the easiest for a seller to dispute or delay.

5. Apply the Basket and the Cap

Check whether the loss (alone or combined with other claims) clears the basket threshold, and confirm the amount being pursued doesn't exceed the negotiated cap for that category of claim. Some agreements carve certain claims (like fraud or fundamental representations) out of the basket and cap entirely — read the specific carve-outs closely.

6. Access the Holdback or Pursue Direct Payment

If the deal included a holdback or escrow, a valid claim is typically satisfied from those funds first, following whatever release process the agreement or escrow agreement sets out. Where there's no holdback, the buyer generally has to pursue the seller directly for payment.

7. Resolve Any Disagreement

If the seller disputes the claim, the agreement's dispute resolution mechanism takes over — this might mean referring a financial dispute to an independent accountant, or moving to arbitration or litigation for other types of disagreements, depending on what the agreement specifies.

What a Strong Notice of Claim Should Include

• A clear reference to the specific representation, warranty, covenant, or indemnity provision the claim relies on.
• A description of what happened and when the buyer discovered it.
• A good-faith estimate of the loss, with supporting figures where they're available.
• Confirmation the notice is being delivered in the form and to the address the agreement specifies.
• A copy kept on file, along with proof of delivery, in case the timing of notice is ever disputed later.

A notice that hits these points cleanly is harder for a seller to dismiss on a technicality, and gives your lawyer a stronger position to negotiate from.

Common Reasons Indemnity Claims Get Delayed or Reduced

• Notice wasn't given in the form or timeframe the agreement required.
• The loss wasn't tied clearly enough to a specific representation or provision.
• The claim fell below the basket threshold, or exceeded the cap for that category.
• The survival period had already run out by the time the issue was discovered.
• Supporting documentation was thin, inviting a genuine dispute over the amount.

Frequently asked questions