A Sudbury Manufacturer, a Silent Term Sheet, and a Fight Over Cash

The situation

Three months after taking over the business, Yohannes opened the company's bank statement and found a balance that was noticeably lower than what he had expected walking into the deal. He read it twice, then called Selam, his wife, who managed their household finances and had reviewed the deal documents alongside him before closing. Neither of them could immediately explain the gap, and neither had a strong enough command of the contract's language to work through it alone — Yohannes, a university professor originally trained outside Canada, spoke English capably in his academic work but had never negotiated a commercial contract in it, and Selam, an actuary, was more fluent but was not a lawyer.

The business was a mid-sized precision parts manufacturer in Sudbury, purchased for a price in the low millions, financed substantially out of the couple's retirement savings along with a modest bank loan. It was meant to be a stable, cash-generating asset for the next stage of their lives, not a source of dispute. The seller, Amalia, had run the company for over a decade and had presented detailed financial records throughout the sale process, which Yohannes and Selam had relied on heavily given their own unfamiliarity with manufacturing operations.

The deal had been negotiated through a term sheet prepared before Yohannes and Selam retained us, drafted with the help of a general business advisor rather than counsel experienced in acquisitions. It set out the purchase price, the closing date, and the basic structure of the deal, but it said nothing about how the business's working capital — the cash, receivables, and payables needed to keep it running day to day — would be measured or adjusted between signing and closing. That silence was not unusual for a first draft, but it was the kind of gap a term sheet review is supposed to catch before the deal moves further.

By the time the missing balance surfaced, closing had already happened. Amalia's position, communicated through her own advisor, was that the purchase price had been agreed as a fixed number and that whatever cash was in the business at closing belonged to the buyers as part of what they bought — including, it turned out, a working capital position that was substantially lower than the historical average the financial records had shown for the two years before the sale.

What the law actually said

A fixed price with no working capital mechanism does not settle, on its own, who was entitled to the cash sitting in the business on closing day — that depends on how the deal was structured and on what the agreement actually defines as being sold, not on the absence of a working capital clause. Amalia's fixed-price argument was not automatically wrong. Ontario contract law asks what the parties actually agreed to, read in light of the whole document and the surrounding circumstances — not what either side later wishes they had agreed to. The term sheet's silence on working capital was not neutral; it needed to be interpreted against everything else the record showed about what the deal was meant to deliver.

That record mattered a great deal here. The financial statements and management accounts Amalia had provided during the sale process, and that Yohannes and Selam had relied on in agreeing to the price, showed the business consistently operating with a working capital cushion in a stable range over the two years before the sale. Those figures were not incidental — they were the basis on which the price had been negotiated. A court or arbitrator asked to interpret a silent term sheet does not ignore that kind of representation simply because it was not restated as a formal clause; it forms part of the factual matrix the agreement has to be read against.

There was also a more direct problem with Amalia's position. In the weeks between the term sheet being signed and the closing date, the business's cash position had dropped well below its historical range, and the pattern of transactions in that window pointed to the company's payables being deliberately slowed and a large receivable being collected early and distributed out before closing, rather than left in the business as it normally would have been. That is the conduct a working capital adjustment clause exists specifically to prevent, and its absence from the term sheet did not mean sellers were free to strip cash out of a business in the run-up to closing without consequence — good faith in performing a contract, including the period leading to closing, is a real constraint under Ontario law, and a seller who manipulates the numbers in that window before handing over a business priced on its normal operating condition is on weak ground.

None of this was guaranteed to succeed. Silence in a term sheet is genuinely ambiguous, and Amalia's advisor argued, not unreasonably on the document's face, that a fixed price was a fixed price. The strength of the position rested on being able to show, with real numbers, exactly what had changed and when — which meant the file turned as much on financial reconstruction as on legal argument.

What we did

1. Arranged consistent professional interpretation for every substantive meeting. Because Yohannes needed to understand the legal reasoning in detail, not just the bottom line, we worked with a qualified interpreter for calls and meetings rather than relying on Selam to translate on the fly, which let Yohannes ask his own questions directly and confirm his own instructions rather than receiving a filtered version of the conversation.
2. Reconstructed the business's working capital history. We had an accountant retained by our office pull two years of monthly management accounts and bank records to establish the normal operating range for cash, receivables, and payables, since a single closing-date snapshot could not on its own show whether the balance was unusual. That range became the benchmark for showing exactly how far the closing-date position had fallen below what the business had represented during the sale.
3. Traced the transactions in the pre-closing window. Line by line, we mapped the payables and receivables activity in the weeks between the term sheet and closing, identifying a pattern of delayed supplier payments and an early receivable collection that had been distributed to Amalia rather than left in the business, which turned a general suspicion into a documented, dated sequence of events.
4. Framed the claim around the factual matrix, not a missing clause. Rather than arguing the term sheet should be read as if it contained a working capital adjustment it did not have, we argued that the fixed price was agreed against a represented operating condition that the seller had then altered before handing the business over — a distinction that mattered because it did not require inventing contract language, only interpreting what was there honestly.
5. Sent a detailed demand supported by the reconstructed figures. Rather than opening with a legal threat, we sent Amalia's advisor the full financial analysis first, month by month, on the view that a well-supported factual case is more persuasive, and harder to dismiss outright, than a bare assertion of legal rights. Leading with the numbers also made clear from the outset that the claim was not a fishing expedition but a documented, specific shortfall.
6. Negotiated directly with Amalia's advisor over several weeks. The early response was a flat denial that anything had changed, so we scheduled a joint call where our accountant walked both sides through the numbers directly rather than exchanging further letters. Putting the figures in front of Amalia's own advisor in real time shifted the conversation from a dispute about principle to a narrower, more tractable argument about the size of the adjustment.
7. Confirmed instructions with Yohannes and Selam at each stage through the interpreter. Before accepting or rejecting any settlement figure, we confirmed directly with both of them, in a language and format they were fully comfortable with, that they understood the trade-offs of accepting a negotiated figure against continuing to press the claim through a formal proceeding. This kept the decision theirs at every step, rather than one made for them through a filtered summary.

The outcome

Amalia's advisor ultimately agreed to a settlement payment covering most of the shortfall Yohannes and Selam had identified between the historical working capital range and the position at closing, paid as a lump sum rather than litigated further. It was not the full theoretical gap, since some portion of the decline was defensible as ordinary seasonal fluctuation rather than manipulation, and our advice reflected that honestly rather than pressing for a number the underlying facts did not fully support.

The larger result was that Yohannes and Selam recovered a meaningful share of their retirement savings that the missing cash represented, without having to commence a formal claim, which would have meant months of litigation over a business they needed to keep running in the meantime. The settlement was reached roughly four months after the missing balance was first noticed, a pace that reflected steady, document-led negotiation rather than an unusually fast or unusually slow process for a dispute of this size.

For Yohannes in particular, the file also changed how he approached the business going forward. Working through the reconstructed financials with an interpreter gave him a level of comfort with the company's accounts that he had not had at closing, when he had relied heavily on Selam and on Amalia's own representations. He has since asked his accountant to prepare monthly management reports in the same format used during the dispute, so a similar gap would be visible immediately rather than three months later.

What you can learn from this