Anonymised, illustrative composite. In a solvent deal an absolute anti-assignment clause is absolute. In a formal proceeding it is not, and the price of overriding it is written into the same section.
At a glance
A facilities-maintenance contractor cleaning and servicing municipal buildings had failed after taking two fixed-price contracts at bid prices that did not survive a wage settlement. It filed a notice of intention and then a proposal.
One asset carried the value: a seven-year contract with a mid-sized municipality, 51 months unexpired, generating about $3,400,000 a year at a gross margin the buyer could work with. Everything else — vans, equipment, the second loss-making contract — was close to neutral.
The contract’s assignment clause was drafted to be absolute: it could not be assigned in whole or in part, with or without consent, and any attempt to do so was an event of default entitling the municipality to terminate.
The municipality was not being obstructive for its own sake. Its procurement staff took the view that a contract awarded on a competitive tender to one contractor should not pass to a different contractor without a fresh tender, and refused consent.
In a solvent transaction that is the end of it. A buyer’s options are consent, a subcontract arrangement the counterparty will usually also refuse, or a price adjustment reflecting a contract that does not travel. See the assignment clause and the change-of-control clause.
The buyer’s offer was $2,150,000 with the municipal contract and $610,000 without it. That $1,540,000 gap is what the assignment power was worth on this file.
The cure cost under the order was $186,000: $122,000 of service credits the municipality had accrued for missed cleaning schedules, and $64,000 of unpaid subcontractor pass-throughs the municipality had a contractual right to set off.
The buyer also priced 11 weeks of process time and about $74,000 of legal cost on the motion, against a contract carrying about $14,400,000 of remaining revenue.
BIA s.84.1(1) reads: “On application by a trustee and on notice to every party to an agreement, a court may make an order assigning the rights and obligations of a bankrupt under the agreement to any person who is specified by the court and agrees to the assignment.”
Two units in that sentence are routinely got wrong. The applicant is the trustee, not the buyer and not the debtor — a buyer cannot bring this motion. And the subject is a bankrupt. The section does not describe a general remedy available whenever a seller is insolvent; mere insolvency is not enough, and there must be a formal proceeding.
It reaches a proposal by extension rather than on its own words. BIA s.66(1): “All the provisions of this Act, except Division II of this Part, in so far as they are applicable, apply, with such modifications as the circumstances require, to proposals made under this Division.” And s.66(1.1) then tunes it: “in deciding whether to make an order under subsection 84.1(1), the court is to consider, in addition to the factors referred to in subsection 84.1(3), whether the trustee approved the proposed assignment.”
The CCAA route is differently shaped and worth knowing for comparison. CCAA s.11.3(1) gives the application to the debtor company itself: “On application by a debtor company and on notice to every party to an agreement and the monitor, the court may make an order assigning the rights and obligations of the company under the agreement”. Same remedy, different applicant.
The carve-outs matter more than the power. Section 84.1(3) provides that the power does not apply to “rights and obligations that are not assignable by reason of their nature” or that arise under “(a) an agreement entered into on or after the date of the bankruptcy; (b) an eligible financial contract; or (c) a collective agreement”. CCAA s.11.3(2) is in the same terms. So the contracts a buyer most wants — personal-service arrangements, some licences — are the ones most likely to fall outside, and a collective agreement is excluded outright.
And the power is not free. Section 84.1(5): the court “may not make the order unless it is satisfied that all monetary defaults in relation to the agreement — other than those arising by reason only of the person’s bankruptcy, insolvency or failure to perform a non-monetary obligation — will be remedied on or before the day fixed by the court”. That is a real number, it is payable by whoever wants the contract, and it belongs in the bid.
The trustee applied. The municipality opposed on the ground that an assignment overrode its procurement policy. The court made the order: the buyer could perform, the assignment was appropriate under s.84.1(4), the trustee approved it as s.66(1.1) requires, and the monetary defaults were to be cured on closing.
The buyer paid $2,150,000 plus the $186,000 cure. The municipality got a solvent counterparty and a contract at the original bid price rather than a re-tender in a risen market.
The union was a separate exercise entirely. A collective agreement is expressly outside s.84.1(3)(c), so the workforce could not come across by assignment; the buyer negotiated with the union directly and the successor-employer question was addressed under provincial labour law, not under the Act.
$1,540,000 of enterprise value, which is what the buyer had put on the contract not travelling.
The alternative structures were worse than they look. A subcontract with the failed entity keeps a proposal debtor alive in the chain. A fresh tender puts the contract on the open market at current prices with no incumbency. Neither is a version of the same deal.
The tell is a contract drafted to prohibit assignment even with consent. That drafting is used precisely where the counterparty most values choosing who performs — and in a solvent deal it works. It is only inside a formal proceeding that it stops working, which is why the clause is worth re-reading the moment a notice of intention is filed.
The second tell is the arrears schedule. A contract with a large accrued set-off is a contract with a large s.84.1(5) cure cost attached, and the cure is a condition of the order rather than something to negotiate afterwards.
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