Buying The Assets, Not The Company, Saved A Sarnia Supplier

The situation

Dawit worked the floor at a retail store. Biniam drove a city bus. They had been friends for over a decade, and for most of that decade they had talked about owning a business together, without ever landing on the right one. The opportunity came from a place neither of them expected: a small Sarnia supplier that machined and finished metal parts for the industrial plants around the city, run by a man named Luc who had inherited it from his father.

Luc's business had lost its largest client contract two years earlier and never fully recovered. Revenue had dropped by roughly a third, debt had piled up faster than the business could service it, and Luc's accountant had recently told him plainly that it was time to speak with a licensed insolvency trustee about winding the company down. Dawit and Biniam knew the shop from the outside — Biniam's transit route passed it daily, and Dawit had done part-time work there years earlier. They believed the business was still viable with the right owners and lower overhead, and they approached Luc directly with an offer to buy it as a going concern before he filed anything formal.

Between them, Dawit and Biniam had pooled roughly $150,000 in personal savings and lined up additional financing from a commercial lender to fund the balance of a purchase price expected to land somewhere between roughly $3 million and $4 million. They came to our team before signing anything, wanting the deal structured in a way that protected them from the mess sitting inside Luc's company, and that stood a real chance of closing given how close the business was to insolvency.

The legal problem

Two separate problems sat on top of each other. The first was structural. A business can be bought in one of two basic ways: by purchasing the shares of the company that owns it, or by purchasing the specific assets out of that company. Buying shares means buying the company itself — its contracts, its tax history, its outstanding lawsuits, and its debts, known and unknown. Buying assets means picking the specific things of value — the equipment, the inventory, the client contracts worth keeping, the leasehold — and leaving the company, and everything attached to it, behind with its existing owner. Given how much debt Luc's company was carrying, a share purchase was never seriously on the table. The deal had to be structured, from the first conversation, as a purchase of assets only, with a written agreement specifying exactly which assets transferred and stating clearly that no liabilities of the company came with them.

The second problem was that Luc's company was insolvent, or close to it, which meant the sale could not be treated like an ordinary business purchase. A search under the Personal Property Security Act, the provincial system that registers claims against a business's equipment, inventory and receivables, showed a commercial lender holding a general security agreement over essentially everything the company owned, securing roughly $2.1 million. Below that sat a group of unsecured trade creditors — suppliers and contractors — owed a combined amount closer to $3 million. Buying the assets without dealing with that lender's registered security would have left Dawit and Biniam owning equipment someone else still had a legal claim against. And under the Bankruptcy and Insolvency Act, a secured creditor facing a company that cannot pay has the option to force the appointment of a receiver and liquidate the assets outright — a path that almost always recovers far less than a negotiated, going-concern sale, because auctioned equipment and dumped inventory sell for a fraction of what they are worth in an operating business. The deal needed to close fast enough, and on terms clear enough, that the lender chose to support a private sale instead of reaching for that option.

What we did

1. Structured the transaction as an asset purchase agreement, not a share purchase. The agreement listed every asset being acquired — equipment, inventory, the client contracts worth keeping, the business name and goodwill — and stated explicitly that Dawit and Biniam's new company was not assuming any of Luc's company's existing debts, pending claims, or tax liabilities. This is the single decision that kept the buyers insulated from everything wrong with the seller's balance sheet.
2. Ran the security searches before a dollar changed hands. The Personal Property Security Act search identified the lender's general security agreement and its priority position, along with two smaller registrations from equipment lessors that needed to be paid out or excluded from the deal to deliver clear title on the equipment being purchased.
3. Built a side-by-side recovery comparison for the lender. We prepared a straightforward analysis showing what the lender and unsecured creditors would likely receive under the proposed asset sale versus a forced liquidation, using conservative estimates for what the equipment and inventory would fetch at auction. That comparison became the basis for the lender's cooperation — it is far easier to get a secured creditor to support a private sale when the numbers show them getting paid faster, and the unsecured creditors behind them getting paid something instead of nothing.
4. Negotiated a holdback and adjustment mechanism. A portion of the purchase price was held in escrow for a short period after closing to cover any inventory count discrepancies or undisclosed equipment issues discovered after Dawit and Biniam took possession, so the risk of surprises after closing did not sit entirely with the buyers.
5. Coordinated the closing around employee and contract continuity. Several long-serving staff and two of the company's remaining industrial client contracts were essential to the business being worth buying at all. We worked with Luc's side to assign the contracts and structure job offers to the retained staff so operations continued without a gap the day after closing.

The outcome

The deal closed roughly four months after Dawit and Biniam's first offer, at a purchase price of about $3.4 million for substantially all of the business's assets. The lender, satisfied that a private sale would recover more than a forced liquidation, agreed to release its security over the purchased assets in exchange for being paid its full secured claim of about $2.1 million out of closing proceeds. After paying the secured lender and covering the insolvency professional's fees and other closing costs of roughly $200,000, about $1.1 million remained to be distributed to the unsecured trade creditors, who were owed a combined $3 million — putting them at roughly 37 cents on the dollar. Under the liquidation scenario the lender had been weighing, the equipment and inventory were conservatively estimated to raise only about $1.4 million at auction, which would not even have covered the lender's own secured claim in full, leaving the unsecured creditors with nothing at all.

For Dawit and Biniam, the win was straightforward: they closed as the new owners of an operating business, free of the debts that had been sitting inside it, with the staff and client relationships that made it worth buying intact. Both kept their day jobs through closing and stepped into the business gradually over the following months as its footing stabilized. For Luc, the sale let him wind the company down with far less exposure to personal liability than a contested liquidation would have carried, and it let him walk away from a business his father had built knowing its employees kept their jobs.

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