Rehiring a Receivership Team Without Inheriting Its Debts

The situation

Marco worked as an insurance adjuster and Huong managed an office; neither had run a business before. When a court-appointed receiver put a Milton HVAC and refrigeration service company up for sale after its owner became insolvent, the couple saw an opportunity. The company had a loyal commercial client base and a stable crew of fourteen technicians and office staff who had kept the business running through the owner's financial troubles. Marco and Huong agreed to buy the company's assets for roughly $980,000, financed partly through savings and partly through a loan secured against the equipment and service contracts they were acquiring.

The receiver was selling assets, not shares, and was selling them free of most of the prior company's debts. That structure protected Marco and Huong from the business's old creditors, but it raised a separate question they had not anticipated: what happened to the employees. The crew was the reason the business had any value left to buy. Marco and Huong wanted to keep as many of them as possible, starting the Monday after closing, with as little disruption to ongoing service calls as they could manage.

Neither Marco nor Huong had ever laid anyone off, hired a crew, or dealt with a unionized or non-unionized workforce transition before. They came to us assuming that buying the business and keeping the staff on was simply a matter of telling everyone their paycheques would now come from a different account. It was Huong, drawing on years of managing an office and reading employment files for a different employer, who first sensed that the transition needed more structure than a friendly conversation on closing day — and who pushed Marco to get legal advice on the employee side of the purchase before they did anything else.

The legal problem

Under the Employment Standards Act, 2000, when a business is sold as a going concern, employees who continue working for the new owner are usually treated as having unbroken service — their years with the old employer count toward vacation, notice, and severance entitlements owed by the new one. That rule exists to stop employers from erasing seniority by selling the business to themselves through a shell transaction, and it applies to a sale conducted by a receiver just as it does to an ordinary sale of a business — there is no receivership exception. What can actually break continuity is a real gap between an employee's old job ending and the new one starting, or a true bankruptcy rather than a receivership; short of one of those, a buyer should assume the seller's staff carry their years forward. That is easy for a first-time buyer to get backwards, and it cuts the opposite way from what most buyers expect: the risk is not that continuity fails to apply because a receiver is involved, but that it applies automatically and has to be planned for.

Left unmanaged, the transition carried two separate risks. First, if Marco and Huong simply told the existing staff to keep showing up for work under the new ownership, a court could later find they had effectively continued the employment relationship regardless of the receivership, exposing them to claims for years of accrued vacation pay, notice periods, and severance calculated on service dating back well before they owned the business. Second, the crew itself was owed real money by the failed company — several employees had unpaid wages and vacation pay outstanding at the time of the receivership, totalling roughly $60,000 across the group. That debt belonged to the old employer's estate, not to Marco and Huong, but the employees understandably did not distinguish between the business they had worked for last week and the one signing their paycheques next week.

One employee in particular, Minh, had been the company's service manager for fourteen years and was central to keeping commercial clients from bolting during the sale process. Minh wanted assurance that fourteen years of loyalty would not simply vanish because of the receivership, and made that a condition of staying on. Losing Minh in the transition would not just mean losing an experienced manager; it risked unravelling the very client relationships that had made the $980,000 asking price defensible in the first place, so the stakes of getting this one relationship right were higher than for any of the other thirteen employees combined.

What we did

1. Confirmed the sale structure and the hiring timeline before closing. We reviewed the asset purchase agreement and the receiver's court-approved sale process to confirm this was a genuine receivership sale rather than a bankruptcy, and confirmed there would be no gap between an employee's last day under the old ownership and their first day under Marco and Huong's. Because neither exception applied, continuity of employment under the Employment Standards Act attached automatically to every employee they rehired — the receivership did not exempt them from it. This was the foundation for everything that followed, not because it revealed a way around the rule, but because it told us exactly which employees it applied to before any offers went out.
2. Issued clear written offers that acknowledged continuity rather than tried to avoid it. We had Marco and Huong give each person they wanted to keep a written offer of employment with a start date the Monday after closing and terms that expressly recognized their years with the prior company for vacation, notice, and severance purposes. There was no gap in their employment and no bankruptcy, so the Act treated their service as continuous regardless of what the offer letter said; writing it down that way did not create the exposure, it just meant Marco and Huong knew exactly what they were carrying rather than being surprised by it the first time an employee was let go.
3. Separated wage claims from the new employment relationship. We explained to Marco and Huong, and helped them explain to staff, that unpaid wages and vacation pay owed by the failed company were claims against the receivership estate, not obligations Marco and Huong were taking on. We pointed departing and continuing employees alike toward the receivership claims process for those amounts rather than letting the new owners absorb debts that were never priced into the $980,000 purchase.
4. Confirmed for Minh, in writing, what the law already gave her. Minh's condition for staying on was assurance that fourteen years of loyalty would not simply vanish because of the receivership. We confirmed in writing that her prior service counted in full toward vacation accrual, notice, and severance, exactly as it would have if the business had changed hands through an ordinary sale — that recognition was not something Marco and Huong could take away, and putting it in writing removed the uncertainty that was making Minh hesitate. In exchange for that certainty, we negotiated a retention commitment from Minh: a defined notice period if she chose to leave voluntarily within the first two years, so the accounts she managed would not be put at risk on short notice.
5. Advised on which roles not to fill. Of the fourteen employees, Marco and Huong's own review of the business's workload supported keeping ten. We confirmed that declining to rehire the other four created no liability for Marco and Huong specifically because those employees' jobs had ended with the receivership sale, not with a decision made by the new owners — those employees' claims, including any notice or severance owed, ran against the former employer's estate.
6. Documented independent advice for the rehired staff. To make the new offer letters and Minh's retention commitment enforceable, we recommended each rehired employee, including Minh, have the chance to review the terms with their own advisor before signing, and built in a short window to do so. An employee who signs away rights without that opportunity can sometimes challenge the agreement later.

The outcome

Ten of the fourteen employees accepted new offers and started with Marco and Huong the week after closing, keeping service calls running with almost no gap for existing customers, each of them carrying their prior years of service forward for vacation, notice, and severance purposes as the Act required. Minh stayed on with that same recognition confirmed in writing, plus the retention commitment Marco and Huong had asked for in exchange, and remained the point of contact for the accounts that mattered most to the business's early survival. The four employees who were not rehired filed claims against the receivership estate for their outstanding wages, vacation pay, and statutory entitlements; Marco and Huong had no obligation to those claims and none was made against them.

It was not a clean sweep. Marco and Huong would have preferred to keep the full team, and two of the four who left took jobs with a competitor within weeks, taking some institutional knowledge with them. Nor was it liability-free: the years of service now attached to the ten rehired employees, fourteen of them Minh's, were a real future obligation for notice and severance that Marco and Huong had to plan for, not one the receivership made disappear. But six months in, the business was stable, the technicians who mattered most to its client relationships had stayed, the roughly $60,000 in unpaid wages and vacation pay from before the sale stayed with the receivership estate rather than landing on Marco and Huong, and there were no surprises — every entitlement attached to the rehired staff had been identified and accounted for before closing rather than discovered afterward. Both sides got a result they could live with, which is often the realistic measure of success in a receivership transition rather than a clean win for either party.

What you can learn from this