No statute turns a retained holdback into a trust fund. Unless the agreement creates a genuine, segregated trust, a holdback is just an unsecured contractual debt — and that distinction decides who gets paid if the buyer goes bankrupt.
Short answer
No statute requires a buyer to segregate a contractual holdback, and unless the purchase agreement creates an actual trust — a segregated fund, not just a promise to pay later — the seller's right to the holdback is an ordinary unsecured debt, not money the seller can trace and reclaim ahead of the buyer's other creditors.
A holdback is, by default, exactly what its name says: an amount the buyer retains rather than paying at closing, governed by the purchase agreement's own indemnity and adjustment provisions. No statute converts that retained sum into a trust. Whether money held by one party for the benefit of another is impressed with a trust, rather than simply owed as a debt, is a question of ordinary trust doctrine: the arrangement needs certainty of intention to create a trust, certainty of the property that is its subject matter, and certainty of who benefits from it. Courts do not presume a trust from a bare obligation to pay a sum later — if the parties intend a segregated fund, the agreement has to say so, and the fund actually has to be kept separate.
That distinction is academic until the buyer becomes insolvent, at which point a federal statute makes it decisive. The Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, under the heading “Property of bankrupt,” excludes from the estate divisible among creditors any “property held by the bankrupt in trust for any other person.” A genuinely segregated holdback would come out of the estate ahead of every secured and unsecured creditor. Money commingled in the buyer's ordinary operating account has no segregated fund for a trust to attach to, so s.67(1)(a) has nothing to bite on: the seller's claim is just an unsecured contractual right to be paid, ranking behind the buyer's secured lenders.
A true third-party escrow, held by an escrow agent under a separate agreement, is a different and much stronger mechanic — the money genuinely leaves the buyer's estate. A buyer-retained holdback, sitting in the buyer's own accounts, is what most deals actually use, and it is exactly the version that carries insolvency risk if the buyer's business fails before the holdback period runs.
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