The memo that surfaced the day before a holiday closing

The situation

The email arrived on a Tuesday, five days before a closing scheduled to fall on the Friday before a long weekend. It came from the buyer's outside counsel, and it was short: a question about how the approximately sixty employees at the St. Catharines division would be treated on closing, framed in a way that made clear the buyer's own team had assumed an answer existed that, as it turned out, did not.

The division made up one unit of a larger corporate parent, and it had been losing money for two years running. The parent's board had approved a plan to sell it off through a pre-packaged insolvency sale, a process in which the buyer and the terms of sale are largely negotiated and agreed before the division formally enters insolvency proceedings, so that the business can pass to its new owner quickly once the filing happens rather than being sold off piecemeal under court supervision over months. The parent's internal counsel, who was managing the divestiture, had run the commercial negotiation carefully, working with Baruch, the division's general manager, to get the buyer comfortable with the operating numbers and the transition plan.

What the deal team had not fully worked through was what happened to the division's employees the moment the pre-pack sale closed. The commercial agreement assumed, informally, that the buyer would simply keep the existing workforce in place, and the transition plan Baruch had prepared for staff was built on that assumption. Nobody on the deal side had put in writing exactly how employment would continue through an insolvency filing and a same-day asset sale, a sequence that does not automatically preserve employment the way a straightforward business sale might, and that can leave employees in limbo if the mechanics are not built into the transaction documents themselves.

Internal counsel had been focused, understandably, on the commercial terms, the treatment of the division's creditors, and the board's approval process, all of which were substantial and time-consuming on their own. The employee question had sat in the background as something everyone assumed was being handled, until the email from the buyer's counsel made clear it was not, five days before a closing that had already been announced internally to the division's staff.

The timing made the discovery worse than it would have been earlier in the process. The parent's board had already approved the filing date, the buyer's financing was already locked to the same schedule, and the division's staff had already been told, in general terms, that a sale was coming and that their jobs were expected to continue. Baruch had spent weeks reassuring his team that the transition would be seamless, based on the same assumption everyone else on the deal had been working from. A gap discovered this late meant there was no room left to simply slow down and think it through; whatever fix emerged had to work inside the days that remained.

What the law actually said

A pre-packaged insolvency sale moves the business's assets from the insolvent entity to the buyer, typically free of most of the seller's prior liabilities, which is part of why the structure is attractive to a buyer taking on a distressed division. But that same feature, a clean break from the seller's liabilities, is precisely what makes employee continuity a question that has to be addressed deliberately rather than assumed. An insolvency filing does not, on its own, end anyone's employment. Employment continues with the insolvent division right through a restructuring like this one; the real break point is a bankruptcy or the closing of the sale itself, the moment the buyer actually decides whose employment it will continue and on what terms. Without specific terms addressing that decision in the sale agreement, there was no assurance the buyer would offer continuing employment to the whole workforce, or would do so on terms consistent with what Baruch had already told his team to expect.

That distinction matters for more than paperwork. Service does not simply reset on a sale like this one. Where a buyer employs the seller's people, Ontario employment standards law treats their service with the seller as service with the buyer for statutory notice, severance and benefit qualification, unless thirteen weeks or more pass between the two jobs, and calling it a fresh start on paper does not undo that. What genuinely turned on the sale agreement was narrower but still real: whether the record made the buyer's commitment to the workforce clear enough that nobody could later argue the transaction had been structured to strip away obligations owed to employees, a risk regulators and courts take seriously in the insolvency context precisely because pre-pack structures move quickly and can leave employees without effective notice of what is happening to their own employment.

The fix required specific mechanics inside the sale agreement itself: an explicit assumption by the buyer of continuing employment for the division's staff, recognition of prior service for the purposes of entitlements that depend on it, and clear communication to employees, timed correctly, about what the transaction meant for them specifically. None of this was exotic legal territory, but all of it needed to be built into the transaction documents before the insolvency filing was made, because once the filing and the sale closed, the structural opportunity to fix a gap in employee treatment would be gone, and any resulting harm to employees would already have happened.

The timing pressure was real. A pre-pack sale is planned to move quickly by design, and the filing, the sale approval and the closing were all scheduled within the same short window. There was no comfortable margin to redraft the transaction from scratch. The fix had to fit inside the days remaining before the scheduled closing, without reopening the commercial terms internal counsel had already negotiated with the buyer.

What we did

1. Reviewed the transaction structure against the specific employee question the buyer's counsel had raised, confirming quickly that the existing documents contained no explicit provision addressing continuity of employment through the filing and sale, which meant the gap was real, not simply a drafting oversight that could be explained away with a side letter once the filing was already underway and the closing date fixed.
2. Assessed the realistic risk to the division's roughly sixty employees under the structure as it stood, including the risk that the buyer would not commit to offering continued employment to everyone, or would do so without expressly recognizing their service with the parent, and the possibility that employees would receive no meaningful notice of what the transaction meant for their jobs, giving internal counsel and the board a clear, specific picture of what was actually at stake before deciding how to respond under time pressure.
3. Drafted specific employment continuity provisions for the sale agreement, requiring the buyer to offer continuing employment to the division's staff on substantially similar terms and to recognize prior service for entitlement purposes, converting an informal assumption everyone had been relying on into a binding term both sides would actually be accountable for once the filing was made and the deal closed.
4. Negotiated the new provisions directly with the buyer's counsel and the wider deal team under real time pressure, framing the request as consistent with what the buyer had always intended commercially, since the buyer's own plan depended on keeping the existing, trained workforce rather than starting over, which made the ask easier to secure quickly without reopening the price or any other commercial term already agreed.
5. Coordinated with Baruch on the timing and content of employee communication, ensuring that staff were told what the transaction meant for their specific employment before the filing became public rather than learning about their own status secondhand, which mattered both legally and for keeping the division's operations stable through what was already a stressful week for everyone on site.
6. Confirmed the revised terms with the insolvency professionals managing the filing, making sure the employee continuity provisions were properly reflected in the court materials and the sale approval sought from the court, since a gap between what was negotiated commercially and what was actually filed would have quietly undone the fix entirely without anyone noticing until after closing.
7. Held a final compliance check the day before closing, walking through every document in the transaction line by line to confirm the employee provisions matched what had been negotiated and that nothing had been dropped in the rush to finalize paperwork over a shortened week ahead of the long weekend, when fewer people on either side of the deal were available to catch a late mistake.
8. Kept a written record of the entire correction, from the original email flagging the gap through the final signed provisions, so that if any employee later questioned their treatment, the parent could show exactly what had been done and when, rather than relying on memory of a fast-moving week months or even years after the transaction had actually closed.

The outcome

The sale closed on schedule the Friday before the long weekend, with the employee continuity provisions built into the final agreement and reflected in the materials filed with the court. The division's roughly sixty employees transferred to the buyer on closing with their prior service recognized and their roles substantially unchanged, avoiding the gap in continuity that the original structure would have left open had nobody asked the right question in time.

Because the problem was caught and fixed before the filing and the sale closed, there was no employee claim, no disrupted transition, and no need for the parent to manage the reputational and legal fallout of a workforce left without clear status during an insolvency sale over a long weekend. The division continued operating without an interruption visible to its customers or its staff, which was the outcome the transition plan had always assumed would happen automatically and which, without the fix, would very likely not have.

For the parent's internal counsel, the near miss reinforced a lesson that applies well beyond this one transaction: a pre-packaged sale moves quickly by design, and that speed is exactly what makes it easy for a structural question like employee continuity to sit unaddressed until someone on the other side of the table asks about it directly, days before there is time left to fix it comfortably. The parent's legal team adjusted its internal checklist for future divestitures to require an explicit employee continuity review at the very start of any pre-pack process, not as a step to confirm quietly at the end once the commercial terms are already locked. Baruch, for his part, was able to keep the promise he had made to his team weeks earlier, and the division's staff went into the long weekend with their employment intact and their questions actually answered, rather than finding out only after the fact how close the transition had come to leaving them without an answer at all.

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