Buying a Rival's Assets Out of Receivership Without Its Liabilities

The situation

Dimitri and Kostas had spent nine years building a mechanical and electrical contracting firm near Orillia, the kind of business that wins municipal and institutional tenders by having enough licensed people to actually staff a job. Dimitri had come up as a construction project manager before the two of them went out on their own; Kostas had trained as a pharmacist and put his savings into the company in its early, thin-margin years. Neither had ever bought a business before.

Their closest competitor, a similarly sized firm across town, had spent the previous eighteen months losing bids and bleeding cash after a run of underpriced fixed-fee contracts. When its bank called the loan, a court-appointed receiver was put in place to sell off the company's assets and wind down its affairs. Dimitri and Kostas saw an opening: the rival's equipment, its client list, and — most valuable of all — a crew of about twenty licensed tradespeople who already knew how to run the kind of jobs they were chasing.

They approached the receiver with an offer to buy the equipment, the vehicles, the accounts receivable, and the goodwill in the business for roughly $3.2 million, financed partly through their bank and partly through retained earnings. The receiver's representative, Grace, was coordinating the sale process and pushed for a fast close — insolvency sales rarely stay open long once a serious buyer appears, because carrying costs and staff uncertainty erode value every week the business sits in limbo.

The employment problem

The asset purchase agreement Grace's office circulated made the usual insolvency-sale point: the buyer takes the assets free of the seller's debts, and any employees who move over are treated as new hires with no obligations carried forward. That is broadly true for most creditors — a receiver's sale is specifically structured to let a buyer take clean title to equipment and receivables without stepping into the seller's line of unpaid suppliers and lenders.

Employment is different, and it is where buyers in Dimitri and Kostas's position most often get caught. Ontario's Employment Standards Act, 2000 treats the sale of a business on its own terms, separate from ordinary insolvency rules. When a new employer takes over a business and hires the outgoing employer's staff without a real break in their employment, the law can treat that service as continuous — meaning the employee's length of service for termination and severance purposes runs back to their original start date with the old company, not the day they signed on with the new one. It does not matter that the old employer went bankrupt or that a court-supervised receiver ran the sale; the length-of-service clock does not automatically reset just because the ownership changed hands.

For Dimitri and Kostas, that mattered because several of the rival firm's senior electricians and project leads had been with that company for twelve to eighteen years. If those employees were ever let go down the road, their entitlement to statutory and common law notice could be calculated against their entire tenure — including years worked for a company that no longer existed and that Dimitri and Kostas had never employed anyone at. Our team estimated the contingent exposure across the senior group at roughly $180,000 if every long-service employee were eventually terminated without cause and the full historical service counted.

Grace's position, understandably, was that this was not the receiver's problem to solve — the receiver's job was to maximize recovery for creditors and close the sale, not to underwrite the buyer's future HR risk. That left the risk sitting squarely with Dimitri and Kostas unless the purchase agreement and the hiring process addressed it directly.

What we did

1. Mapped every employee's actual service date, not their job title. We had Dimitri and Kostas pull employment records for the roughly twenty staff they intended to keep, sorting them by true start date with the old company rather than by role. This turned an abstract risk into a concrete list: six employees carried more than a decade of prior service, and those six accounted for almost all of the exposure.
2. Advised against a same-day, wall-to-wall rehire. The instinct was to offer everyone a start date the Monday after closing, matching the old schedule exactly, because it was operationally the simplest path. We explained that a seamless handover is precisely what makes continuity of service more likely to be found — the more the new job looks and feels like a continuation of the old one, the harder it is to argue it wasn't.
3. Negotiated a purchase price holdback with the receiver. Rather than asking the receiver to indemnify future employment claims — a request Grace's office was never going to accept, since receivers do not warrant a buyer's post-closing decisions — we proposed holding back roughly $150,000 of the purchase price in escrow for twelve months, released to the estate if no employment claims materialized. This gave Dimitri and Kostas a partial cushion without asking the receiver to absorb a risk it could not control.
4. Built enhanced termination language into the new offers of employment for the long-service group. For the six employees with the longest history, we drafted new employment agreements with termination provisions that gave them credit for a meaningful portion of their prior service in any future severance calculation — not the full historical amount, but enough to be defensible and fair, and enough that a court would be far less likely to find the arrangement was designed to strip away earned entitlements.
5. Left the remaining hires on standard new-hire terms. For employees with only a year or two of prior service, the incremental risk was small enough that standard offer letters, with normal probationary and termination clauses, were the more practical choice. Treating every employee identically would have meant either overpaying for low-risk hires or underprotecting the business against the real exposure.

The outcome

The deal closed roughly ten weeks after the initial offer — slower than Grace had hoped for, since assembling the service-date records and negotiating the holdback took real time, but well within what receivership sales normally allow. Dimitri and Kostas kept nineteen of the twenty employees they wanted; one senior estimator took a role elsewhere rather than accept the new terms, a loss they had planned for and could absorb.

The escrow arrangement was not the clean outcome either side originally wanted. The receiver's estate would have preferred the full $3.2 million released at closing, and Dimitri and Kostas would have preferred no holdback at all given how tight their financing already was. What they landed on instead was a genuine compromise: a twelve-month holdback large enough to matter if a claim arose, small enough not to jeopardize the deal, released in two stages as the risk window narrowed. At the twelve-month mark, with no claims filed, the full holdback was released to the estate.

Eighteen months after closing, one of the long-service electricians was let go during a slow stretch. Because his new agreement had already accounted for a portion of his prior service, the severance conversation was straightforward rather than adversarial — he was paid what the agreement called for, and there was no dispute about whether his years with the old company counted. That single episode was the clearest proof the structure had done its job: the risk that had been abstract during due diligence turned real, and the business absorbed it on predictable terms instead of being blindsided by it.

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