Anonymised, illustrative composite. Every other concentration file is about commercial risk. This one is about legal capacity: whether the buyer could take the receivable at all, and who controls the day it moves.
At a glance
A mid-market buyer agreed to acquire the business and assets of an Ottawa IT services firm for $5,600,000. Forty staff, two offices, and one federal department accounting for 62% of trailing revenue under a multi-year services contract.
The concentration was priced — discussed in the letter of intent, reflected in the multiple, tested for whether the relationship was institutional or personal. What had not been tested was whether the contract and the money owing under it could be transferred at all.
The asset purchase agreement listed accounts receivable among the purchased assets and relied on a general conveyance to move them. At closing the ledger showed $1,140,000 owing from the department across four invoices and one milestone.
A commercial receivable moves that way. A Crown debt does not. The starting position in federal law is a prohibition, not a permission, and the exception that rescues it comes with three conditions and a date the parties cannot control.
There is also a unit problem most deal teams walk past. The statute that permits the assignment governs the debt, and says nothing about the contract. Moving the contract is a separate exercise under its own assignment clause and the department’s process — different official, different timetable, and here a facility security clearance the buyer did not hold.
$1,140,000 of Crown receivables, being 20% of the $5,600,000 purchase price and the single largest allocated asset. 62% revenue concentration. A closing date fixed eleven business days out because the vendor’s lender had a discharge scheduled.
Notice of assignment was served and mailed on the fourth business day. The acknowledgment that makes service effective came back thirty-four days later. Between those dates the assignment had no effect at law, and no drafting in the purchase agreement could change that.
The buyer’s clearance application, submitted in parallel, ran on a timetable measured in months. Neither could be compressed.
Start with the prohibition. Financial Administration Act s.67, headed General prohibition, provides that except as provided in that Act or any other Act of Parliament, a Crown debt is not assignable and “no transaction purporting to be an assignment of a Crown debt is effective so as to confer on any person any rights or remedies in respect of that debt”. A general conveyance in a purchase agreement is exactly such a transaction, and it confers nothing.
A Crown debt is defined in s.66 as “any existing or future debt due or becoming due by the Crown, and any other chose in action in respect of which there is a right of recovery enforceable by action against the Crown”. Unpaid invoices and unbilled milestones both fall inside it.
Then the exception, and this is where the common assumption goes wrong in the other direction. Section 68(1) permits an assignment of “a Crown debt that is an amount due or becoming due under a contract” and of any other Crown debt of a prescribed class. An ordinary federal contract receivable is therefore assignable. It is not locked; it is conditioned.
The conditions are in s.68(2). The assignment is valid only if “it is absolute, in writing and made under the hand of the assignor”, it does not purport to be by way of charge only, and notice has been given to the Crown as provided in s.69. Under s.68(3) it passes the legal right, the remedies and the power to give a good discharge only “from the date service on the Crown of notice of the assignment is effected”.
Section 69 is the provision that governs the calendar. Notice is served on or mailed to the Receiver General or a paying officer in prescribed form with a copy of the assignment. And then s.69(2): “Service of the notice referred to in subsection (1) shall be deemed not to have been effected until acknowledgment of the notice, in prescribed form, is sent to the assignee, by registered mail, under the hand of the appropriate paying officer.” The Crown, not the parties, decides when the assignment bites.
Finally s.68(4): “An assignment made in accordance with this Part is subject to all conditions and restrictions in respect of the right of transfer that relate to the original Crown debt or that attach to or are contained in the original contract.” A no-assignment clause in the underlying contract survives the statutory machinery intact. Section 68(5) separately makes salary, wages and pay unassignable, which is why payroll-linked amounts never move.
The parties stopped trying to move the receivable and priced it instead. The $1,140,000 was carved out of the purchased assets and left with the vendor, the price was reduced by the same amount, and the buyer took a vendor note for $1,140,000 payable as and when the department paid — remittance within two business days of receipt, monthly reconciliation. The vendor’s lender consented, its discharge funded from the reduced closing payment plus a first charge over the collection account.
The contract was handled separately. It permitted subcontracting on written notice to the department, so the vendor subcontracted the balance of the term to the buyer, retaining prime responsibility and passing the margin through. Novation was deferred to the renewal date, by which time the buyer expected to hold its clearance. The mechanics are the same family as the assignment clause and customer contract consents in an asset purchase, but the counterparty is not.
Closing on the general conveyance would have produced an assignment that s.67 makes ineffective to confer any rights or remedies. The buyer pays $1,140,000 for a claim it cannot enforce, and the only person who can enforce it — the vendor — has no obligation to hand the money over, because the agreement records the receivable as sold.
That is not a paperwork failure with a post-closing fix. Once the vendor is paid and the deal is closed, the buyer’s leverage to obtain a compliant s.68 assignment is whatever goodwill remains — and the vendor here was retiring.
The customer’s name on the aged receivable listing. Receiver General for Canada, or a department name, is not a commercial counterparty and the ordinary rules do not reach it.
The second tell is the absence of an assignment provision in the contract. Federal contracts often address subcontracting at length and assignment barely at all, because the statute already answers it — and a contract silent on assignment is not one that permits it. In a share purchase no assignment occurs, so s.68 is never engaged, but the contract’s change-of-control clause and the clearance conditions are, which is a different consent from a different official. And a provincial or municipal customer is outside the federal Act entirely; each province has its own regime and municipalities are generally governed by the contract alone.
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