Anonymised, illustrative composite. A single client renewal turned out to be a closing condition in two separate documents, negotiated by two separate teams, neither aware the other had written the same clause.
At a glance
A sponsor agreed to acquire an industrial logistics operator in British Columbia for $2,600,000, with a $900,000 senior facility funding part of the purchase. One client contract — a multi-year distribution agreement — accounted for 42% of the target's trailing-twelve-month revenue and was itself up for renewal in the weeks around closing.
The purchase agreement's own closing conditions required the anchor contract to be renewed before closing, on the seller's side of the checklist. Separately, and without either deal team initially comparing notes, the lender's credit agreement made funding of one tranche of the facility conditional on the same renewal — because the lender's own collateral value depended on it. Both conditions were drafted correctly, for their own document, by advisors who each had a legitimate reason to want the renewal locked down before money moved. Neither had visibility into the other's checklist until the closing binder was assembled in the final week.
Under British Columbia's Personal Property Security Act, a security interest can attach to a company's “account” — defined in the Act as “a monetary obligation not evidenced by chattel paper or an instrument, whether or not it has been earned by performance.” A client's contractual right to future payment is exactly that: an account. The lender's general security agreement attached to all of the target's accounts, and the anchor client's contract alone represented $310,000 of the $900,000 facility's collateral-supported borrowing base — roughly 34% of the whole facility.
If the contract lapsed rather than renewed, the account it represented would lapse with it — and so, in the lender's own credit analysis, would $310,000 of the collateral value the facility was sized against.
The PPSA's own definition of “account” is broad enough to capture a contractual right to payment whether or not the work behind it has been performed yet — which is exactly why a lender can size a borrowing base against a client contract in the first place, and exactly why that same lender has a genuine, statute-grounded reason to hold back funding until the contract underlying the collateral is actually renewed rather than merely expected to renew.
The renewal, expected before closing, did not land until twelve days after the scheduled funding date. Rather than delay the whole transaction, the sponsor funded the $310,000 gap from its own working capital for those twelve days, to be reimbursed once the lender released the held-back tranche against the signed renewal. The rest of the facility funded on schedule.
For a related covenant-measurement problem on a different file, see debt service that failed on a seasonal low month, and for the security concept behind this collateral, the general security agreement glossary entry.
Had the two closing conditions not lined up — had the SPA allowed closing without the renewal in hand — the buyer could have closed owning a business that had just lost 42% of its revenue, financed by a lender relying on a borrowing base that had partly evaporated the same week. The twelve-day bridge, funded from the sponsor's own resources, was a minor and temporary cost next to that alternative: a solvency problem discovered after money had already moved, not before.
The same client renewal appeared as a condition precedent in two separate documents — the share or asset purchase agreement, negotiated by legal counsel, and the credit agreement, negotiated by the financing team — without either work stream cross-checking the other's closing checklist. A single master closing checklist, owned by one person on the deal team and checked against both documents, would have surfaced the overlap, and the risk it created, weeks before closing rather than in the final two weeks.
The broader habit worth taking from this file: any condition precedent that shows up in more than one closing document is worth asking why it is duplicated, rather than assuming duplication means it is doubly covered. Two independent teams relying on the same unconfirmed fact is not redundancy — it is a single point of failure that looks, on paper, like two.
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