A no-undisclosed-liabilities representation can be drafted two ways, and they are not stylistic variants of the same promise — one is pegged specifically to what the accounting framework requires on the balance sheet, and that version can miss a real contingent liability entirely.
Short answer
It depends entirely on how the representation is worded: a broad, catch-all version reaches every liability of the company whether or not an accounting framework would recognise it, but a version pegged specifically to what the applicable accounting framework would require to be “reflected or reserved against” on the balance sheet can leave a genuine contingent liability, like a guarantee of another entity's debt, entirely outside the promise.
No statute governs the drafting or scope of a no-undisclosed-liabilities representation in a Canadian share purchase agreement; its reach is set entirely by its own words. Under Canadian private-company accounting standards, a guarantee of another entity's debt is ordinarily treated as a contingency, not an existing liability. A contingency is recognised — entered as a liability on the balance sheet itself — only once a future payment is both likely and reasonably estimable. Short of that, it is, at most, a note-disclosure item, and note disclosure is not the same thing as being reflected or reserved against on a balance sheet.
So a representation promising only what the accounting framework requires to be reflected or reserved against on the balance sheet is, on its own words, narrower than a plain-English reading of “no undisclosed liabilities” suggests. A guarantee that was current, with no default and nothing suggesting a call was probable, can be exactly the kind of liability this narrower wording was never built to reach — not because it was hidden, but because the representation's own accounting-standard qualifier never promised to catch it.
A broader representation — reaching every liability, known or contingent, disclosed or not, regardless of accounting treatment — closes this gap, and is what buyers' counsel push for specifically because the narrower, accounting-pegged version is the market default in many templates.
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