How to Search for Lawsuits Against a Business in British Columbia

If you are thinking of buying a business in British Columbia, one fear is a lawsuit or judgment that nobody mentioned. A claim that is already underway, or a debt the seller owes, can become your problem or reduce what the business is worth.

There is no single search that answers every question. This article explains the registry searches that can point to claims and debts, the obligations that can follow a business to a new owner, and how seller disclosure and time limits fit in.

This article covers the law of British Columbia.

What a search can and cannot tell you

People often say they want to search for lawsuits against a business. In practice, a lawsuit, a judgment, a lien and an insolvency filing are recorded in different places. A search of one record will not reveal the others.

Searches of court records for claims against a company or its owner depend on the court, the names searched and how the claim is recorded. Your lawyer can run those searches and explain what the results do and do not cover. A claim that has not yet been filed will not appear in any search, which is why written disclosure from the seller matters.

Registry searches that point to claims and debts

Several public registries are useful even though they are not lawsuit databases. Each shows part of the picture.

A PPR search can be done in person at a Service BC location, through a third-party service provider, or by mail to BC Registry Services. Direct online PPR access is limited to professionals with a premium account, so a buyer usually searches through Service BC, a mailed request, or a lawyer or search agent.

Reading the results carefully

• A PPR search alone does not reveal every lien, because builders' liens, family maintenance liens and some other liens are filed with other agencies.
• Registrations last for set terms, so an old registration may still be live. Check the expiry or term shown in the result.
• A financing statement may be registered before the security agreement is made, so a search can show a lender's claim that is not yet fully in use.
• A regular land title search may miss a builders' lien submitted for registration the same day but not yet registered. Lenders and buyers' lawyers often order a separate after-3:00 p.m. search.
• Property searches cover land only, not equipment or inventory.

If a search shows a lender's registration against equipment you are buying, the seller can be asked to have it discharged. A person with an interest in the property can give a written demand, and the secured party must then register a financing change statement within 40 days. Build that timing into your closing plan.

Obligations that follow the business

Hidden claims are not always lawsuits. Some debts of the seller can land on a buyer, depending on how the deal is structured.

• PST: a buyer is told to obtain a PST clearance certificate before buying a business. Without one, the buyer is liable for an amount equal to any outstanding amount the seller owes.
• Employees: if all or part of a business is disposed of, an employee's employment is deemed continuous, so the buyer takes on the seller's obligations to employees who stay.
• Share purchase: the buyer takes the company with its history and liabilities.

There are exceptions. If the seller terminates employees before the sale, the seller owes their outstanding wages and compensation and the buyer is not liable. Where a trustee in bankruptcy sells the business as a going concern, the buyer is not liable for wages owed before the bankruptcy.

Seller disclosure, time limits and next steps

Ask the seller to disclose in writing any lawsuits, demand letters, judgments and threatened claims, and to confirm that the information is complete. If something is misstated, you may have a claim after closing. A court proceeding must not be started more than 2 years after the day the claim is discovered. A claim is discovered when the person knew or reasonably ought to have known of the loss, that the defendant's act caused it, and that a proceeding is appropriate.

The limitation period is extended if a person acknowledges liability in respect of the claim, and the acknowledgment generally must be in writing and signed.

• Get the exact legal names of the seller, the company and its owners, including former names.
• Order a PPR search and check each registration's term.
• Order a corporate search to confirm current directors.
• Run a bankruptcy and insolvency search.
• Order a land title search if the business owns or holds an interest in land.
• Ask for a PST clearance certificate.
• Have your lawyer search court records and review the seller's written disclosure.
• Keep a dated record of every search result you rely on.

Frequently asked questions