Buying assets out of a company under CCAA protection isn't a distressed version of an ordinary asset purchase. It's a different legal process, run by a court, with its own six-factor test for whether a sale gets approved at all.
Key takeaways
“Stalking-horse bid” and “SISP” are the vocabulary buyers bring to a Canadian distressed-asset process from American Chapter 11 practice, where they're formal statutory terms. Canada doesn't have a bespoke statutory process by that name. What it has instead is Companies' Creditors Arrangement Act s. 36 — a general court-supervised sale-approval test that does the same underlying job, on its own Canadian mechanics, whether or not the parties choose to run a stalking-horse structure within it.
CCAA s. 36(1) is direct about the constraint: “a debtor company in respect of which an order has been made under this Act may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court.” The same subsection gives the court a power an ordinary asset sale doesn't have available: “despite any requirement for shareholder approval, including one under federal or provincial law, the court may authorize the sale… even if shareholder approval was not obtained.” That's a direct override of the CBCA s. 189(3) special-resolution vote discussed in why vendors prefer shares and buyers prefer assets — in an ordinary asset sale of substantially all of a corporation's property, the shareholders vote; in a CCAA sale, the court's authorization can substitute for that vote entirely.
The court doesn't authorize a sale simply because the debtor asks. Section 36(3) sets out the factors it weighs: whether the process leading to the proposed sale was itself reasonable; whether the monitor — the court-appointed officer overseeing the restructuring — approved the process; whether the monitor reported that the sale “would be more beneficial to the creditors than a sale or disposition under a bankruptcy”; the extent of creditor consultation; the sale's effects on creditors and other interested parties; and “whether the consideration to be received… is reasonable and fair, taking into account their market value.” A buyer negotiating a CCAA purchase is, in effect, negotiating a deal that has to survive scrutiny against all six factors before it closes — not just agreeing a price with the debtor's management.
The bar rises further where the buyer is related to the debtor company. Under s. 36(4)–(5), the court can authorize a related-party sale only where “good faith efforts were made to sell… to persons who are not related” and “the consideration to be received is superior” to any other offer received in the process — with “related” defined broadly enough to catch a director, an officer, or anyone with “control in fact” over the debtor. An insider or an affiliate buying the assets out of its own group's insolvency proceeding faces a materially harder approval standard than an arm's-length third party would.
What “free and clear” actually clears — and what it doesn't
Clears: under s. 36(6), the court can authorize the sale “free and clear of any security, charge or other restriction,” with any such charge attaching instead to the sale proceeds rather than following the assets to the buyer.
Doesn't clear: s. 36(8) states plainly that a sale “does not affect” a counterparty's existing right to use intellectual property the debtor company licensed to them. A buyer acquiring assets that include IP the debtor previously licensed to a third party inherits that licensee's continuing right to use it — clean title to the assets does not mean an unencumbered licence position.
Condition on the whole authorization: under s. 36(7), the court will only authorize the sale if satisfied the company “can and will make” the employee and pension priority payments the Act requires elsewhere.
The whole proceeding operates under a stay of other creditor action, and that stay itself has a short initial leash: s. 11.02(1) caps an initial stay at a period the court considers necessary, “which period may not be more than 10 days,” with longer extensions available on a subsequent application under s. 11.02(2) where the applicant satisfies the court that “circumstances exist that make the order appropriate.” A buyer entering a CCAA sale process is operating inside a proceeding designed around short court check-ins, not an open-ended timeline — useful discipline for a buyer's own diligence schedule, and a reason CCAA sales tend to move faster than a comparable ordinary-course acquisition.
The mechanics of which specific assets a buyer takes, and which it leaves behind, still work the same way they would in any asset purchase — see which assets to exclude from an asset purchase. What's different is that the court's approval, rather than the seller's own board and shareholders, is what ultimately makes the transfer effective.
A mid-sized industrial equipment manufacturer files for CCAA protection and obtains an initial ten-day stay under s. 11.02(1), later extended. The monitor runs a sale process; an arm's-length strategic buyer submits the leading bid for substantially all of the company's operating assets, structured with an initial offer the parties treat as a floor for subsequent bidding — the practical equivalent of a stalking-horse structure, run entirely through s. 36's own mechanics rather than any Canadian statutory stalking-horse provision, because none exists. The monitor reports to the court that the process was reasonable, that creditors were consulted, and that the proposed sale would recover more for creditors than a liquidation in bankruptcy would. The court authorizes the sale free and clear of existing security under s. 36(6), with the secured lenders' charges attaching to the proceeds instead of the assets. One existing customer, however, holds a perpetual licence to use a patented manufacturing process the company had licensed to it years earlier; under s. 36(8), that licence survives the sale untouched, and the buyer inherits the assets subject to it — a term sheet detail the buyer's counsel flagged during diligence rather than one the court order itself needed to spell out separately.
No. CCAA s. 36(1) expressly lets the court authorize the sale despite any shareholder-approval requirement under federal or provincial law, including the CBCA s. 189(3) special-resolution vote that would otherwise apply to a sale of substantially all of a corporation's assets.
Not entirely. Section 36(6) clears the assets of existing security, charges and restrictions, with any such charge reattaching to the sale proceeds instead. But s. 36(8) specifically preserves an existing licensee's right to continue using intellectual property the debtor company licensed to them — that right survives the sale regardless of the free-and-clear order.
Harder, not easier. Section 36(4)–(5) requires the court to be satisfied that good-faith efforts were made to find an unrelated buyer and that the related party's consideration is superior to any other offer received, before authorizing a sale to anyone related to the debtor company — a materially higher bar than an arm's-length sale faces.
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