Most M&A disputes are not about whether the deal happened. They are about the true-up, the earnout, or a liability nobody found in diligence. Almost all of them are decided by clauses agreed before closing and by a notice somebody had to give on time.
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The working capital true-up comes first. One side prepares a closing statement within a set number of days, the other has a set period to object in writing with reasons, and unresolved items go to an independent accountant acting as an expert rather than an arbitrator — whose determination is usually final and binding with no appeal. Two drafting points decide the outcome: which accounting policies apply, and which prevails when the specified policies conflict with GAAP. Say so expressly, because that conflict is where most true-up money is won and lost.
Escrows and holdbacks have their own timetable. Note the release dates, note exactly what a claim has to look like to stop a release, and note who instructs the escrow agent. An escrow that releases automatically unless a notice in a prescribed form arrives by a prescribed date has caught out plenty of buyers who thought a phone call was enough.
Earnouts produce the ugliest fights, and almost always about how the business was run after closing rather than about arithmetic. Write express covenants: no reallocating revenue to affiliates, maintain the sales team and the marketing spend, keep separate books for the earnout period, give the seller access to them. Where the buyer holds discretion, Canadian law requires it be exercised honestly and in good faith — Bhasin v Hrynew, 2014 SCC 71, and Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 — but proving bad faith is far harder and far more expensive than drafting around it.
Survival periods differ by representation. General business representations survive for a comparatively short period, tax representations usually track the reassessment window, and fundamental representations about title, authority and capitalisation often survive far longer or indefinitely. Diary all of them the week after closing. A claim delivered a day after the survival period has expired is normally gone, however good it was.
The notice provisions are read strictly. Most agreements require written notice describing the facts in reasonable detail and, often, stating the amount claimed or a good faith estimate. Courts have refused claims for notices that were vague, sent to the wrong address, or sent by a method the agreement did not permit. Read the notice clause before you write the notice, and serve it exactly the way the contract says.
Then check the financial architecture. Caps, baskets or deductibles, de minimis floors, and whether a materiality scrape applies for the purpose of calculating loss. Where representation and warranty insurance was placed, your counterparty is an insurer with its own notice conditions and its own timetable, and telling the seller is not the same as telling the insurer. Note also that the Limitations Act, 2002 gives a basic two-year period from discovery, but for a business agreement — one where no party is a consumer — the parties can vary or exclude limitation periods, so your contract usually governs.
Employees carry their service with them. On a sale of a business, section 9 of the Employment Standards Act, 2000 deems employment continuous where the buyer hires the seller's employees, so service dates flow through into notice, severance and vacation entitlements — unless the buyer hires them more than 13 weeks after the earlier of the sale and their last day with the seller. Changing terms unilaterally after closing risks constructive dismissal, and harmonising two benefit plans is the most common way that happens by accident.
Non-competes have their own rules. Section 67.2 of the Employment Standards Act, 2000 has prohibited non-compete agreements in employment contracts since 25 October 2021, with exceptions for executives and for a seller of a business who becomes the buyer's employee. A covenant taken from a retained manager who is not an executive and not a seller is void, whatever the contract says.
Then chase the consents and the housekeeping. Landlord consent to an assignment, franchisor consent, key customer and supplier consents, licences reissued in the new name. A landlord who never consented can still call a default months later. On the corporate side: minute book resolutions, share certificates, the register of individuals with significant control updated within 15 days, PPSA discharges registered, bank signing authorities changed, CRA program accounts updated, insurance rewritten, IP assignments recorded with CIPO, and domains actually transferred rather than merely promised.
Decide the forum in the agreement, and decide it in layers. Accounting disputes on the true-up go to an independent accountant as expert. Everything else goes either to court or to arbitration. Mixing the two without saying which is which produces a preliminary fight about jurisdiction before anyone argues the merits.
In Ontario, commercial claims are heard in the Superior Court of Justice, and in Toronto corporate and commercial matters can be case-managed on the Commercial List, which is materially faster for urgent relief. Arbitration under the Arbitration Act, 1991 is private and can be quicker, but appeal rights are limited unless the agreement provides for them — that is a feature for some parties and a serious problem for others. International deals fall under the International Commercial Arbitration Act, 2017.
Before any of that, put both accountants and both principals in a room without prejudice. A large proportion of true-up and earnout disputes are arithmetic and assumption disagreements that survive only because nobody has sat down and reconciled the two spreadsheets. It costs a day. The alternative costs a year.
Whatever the agreement says, and that usually beats the statute. Survival periods are negotiated separately for general, tax and fundamental representations. Ontario's Limitations Act, 2002 gives a basic two-year period from the day the claim was discovered, but section 22(5) lets parties to a business agreement — one where no party is a consumer — vary, shorten, lengthen or exclude limitation periods. So read the survival clause first, diary every date, and treat the two-year period as a backstop rather than your answer.
The price is agreed on the assumption that the business will be delivered with a normal level of working capital — receivables, inventory and payables. After closing, someone prepares an actual statement, and the price is adjusted up or down for the difference against the target. It is not a second bite at valuation. The fights are about accounting policy: whether a receivable is collectible, how inventory is valued, whether an accrual should have been booked. Specifying the policies in the agreement prevents most of them.
It depends on why. If the market moved, no — earnout risk is what you agreed to take. If the buyer moved revenue to an affiliate, cut the sales team, loaded costs onto the acquired business, or refused to give you the accounts, you may have a claim for breach of the express covenants, and Canadian law requires contractual discretion to be exercised honestly and in good faith. Get the earnout accounts, get them early, and put your objection in writing within the period the agreement specifies.
You do not have to hire them at all in an asset purchase, though the seller will then bear the termination cost and will price it into the deal. If you do hire them, section 9 of the Employment Standards Act, 2000 deems their employment continuous, so their years of service with the seller count towards notice, severance and vacation. Changing terms after closing without fresh consideration and consent risks a constructive dismissal claim carrying that full service history.
Arbitration is private, you can pick an arbitrator who understands the industry, and it can be faster. The trade-off is limited appeal rights under the Arbitration Act, 1991 unless you provide for them, and no easy way to join a third party. Court is public and slower, but in Toronto the Commercial List handles corporate disputes efficiently and interim relief is straightforward. Either works. What does not work is an arbitration clause that leaves it unclear whether the accounting expert determination is inside or outside it.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.