Anonymised, illustrative composite. Which insolvency statute a distressed sale runs under is not a preference or a cost decision at the mid-market end. It is a threshold, and it changes the officer, the timetable and the comparison the court is asked to make.
At a glance
A specialty bakery supplying grocery and food-service accounts from three production sites in southern Ontario had run out of working capital after a flour and energy cost cycle it could not pass through under fixed-price supply agreements.
Total claims were $3,600,000: a secured operating lender at $1,900,000, trade payables of $1,140,000, $214,000 of unpaid wages, vacation and pension amounts, and the balance in equipment leases and taxes. A regional food group wanted two of the three sites and the brand.
The advisers’ opening assumption was a CCAA filing with a monitor and a court-supervised sale process, because that is the shape a buyer’s counsel recognises and prices.
It was not available. CCAA s.3(1) provides that “This Act applies in respect of a debtor company or affiliated debtor companies if the total of claims against the debtor company or affiliated debtor companies, determined in accordance with section 20, is more than $5,000,000 or any other amount that is prescribed.” At $3,600,000 the company was $1,400,000 short of the door.
That is a jurisdictional gate, not a cost preference — and it is the reason most Canadian mid-market distressed sales run under the Bankruptcy and Insolvency Act, not because the professionals are cheaper.
The buyer paid $2,350,000 for the assets of two sites, the brand, the customer contracts and the recipes, leaving the third site’s equipment to be auctioned.
Against $1,900,000 of secured debt, the sale cleared the secured position and left roughly $210,000 for the estate after the wage and pension reserve, professional fees of about $186,000 and auction costs. Unsecured trade creditors recovered a little over four cents.
The timetable cost as much as the fees. A notice of intention filed under BIA s.50.4 gives 30 days to file a proposal; extensions are granted by the court “not exceeding 45 days for any individual extension and not exceeding in the aggregate five months after the expiry of the 30-day period referred to in subsection (8)”. Two extensions took the process to day 106, when the sale motion was heard. Miss the outer limit and the debtor “is, on the expiration of that period or that extension, as the case may be, deemed to have thereupon made an assignment” — the process becomes a bankruptcy by operation of law.
BIA s.65.13(1) is the authority for the sale: an insolvent person under a notice of intention or a filed proposal “may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court”. The same subsection adds a provision buyers underrate: “Despite any requirement for shareholder approval, including one under federal or provincial law, the court may authorize the sale or disposition even if shareholder approval was not obtained.” A dissenting shareholder is not a veto.
Notice goes to “the secured creditors who are likely to be affected by the proposed sale or disposition” under s.65.13(3), and the court weighs six factors under s.65.13(4): whether the process was reasonable, whether the trustee approved it, whether the trustee filed a report, the extent of creditor consultation, the effects on creditors and other interested parties, and “whether the consideration to be received for the assets is reasonable and fair, taking into account their market value”.
Factor (c) is where the regimes genuinely differ, and it is worth quoting because the comparator is narrower than most buyers assume: the court considers “whether the trustee filed with the court a report stating that in their opinion the sale or disposition would be more beneficial to the creditors than a sale or disposition under a bankruptcy”. The benchmark is a bankruptcy sale — a liquidation — not a hypothetical better-run going-concern process. CCAA s.36(3)(c) asks the same question of the monitor.
One further constraint prices the deal. Section 65.13(8): “The court may grant the authorization only if the court is satisfied that the insolvent person can and will make the payments that would have been required under paragraphs 60(1.3)(a) and (1.5)(a) if the court had approved the proposal.” Those are the unpaid wage and pension amounts. On this file that was the $214,000 reserve, and it came off the buyer’s side of the table in the sense that no lower price would have been approvable.
Section 65.13(7) then allows the sale “free and clear of any security, charge or other restriction”, with the displaced security attaching to the proceeds — which is what a buyer is actually paying for.
The sale was approved on day 106 at $2,350,000, free and clear, with the wage and pension amounts reserved and the secured lender’s charge attaching to the balance of the proceeds. The buyer took two sites and the brand and hired 71 of 94 employees on new terms.
The regime difference the buyer felt was not the price. It was that the debtor stayed in possession throughout, with the trustee reporting rather than running the business, and that the statutory clock was hard: there was no equivalent of asking for one more stay extension in month seven.
The alternative route on the same facts is a receivership. Under BIA s.243(1), “on application by a secured creditor, a court may appoint a receiver” where it considers it just or convenient. That puts an officer in possession of the assets and takes the sale out of the debtor’s hands entirely — a different balance of control, and one the secured lender here chose not to force. See acquiring assets through a court-supervised process.
Four to six weeks and roughly $90,000 of professional time were spent scoping a CCAA filing that could not have been made. The threshold check is a single arithmetic step against s.3(1) and it belongs at the first meeting.
The other avoidable cost was structural. A buyer that had priced a CCAA timetable would have modelled stay extensions running past six months; on this file the outer statutory limit was fixed from the day the notice of intention was filed.
The tell is the size of the claims register. Under about $5,000,000 the CCAA is simply closed, so any adviser proposing it either has claims figures you do not, or has not checked.
The second tell is who signs the report. If the report to the court comes from a trustee rather than a monitor, you are in the BIA proposal regime, the debtor is still in possession, and the clock is statutory rather than judicial.
A 30-minute call is enough to tell you whether AI pays for itself here.
Canadian small-business transaction data is not published anywhere, so most valuations in this country quote an American benchmark. The Deavo–Treadstone Acquisition Index is a daily record of Canadian listings built to replace that: asking-price distributions by province and city are published now, and days on market, departure rates and asking-to-sale spreads follow as the series lengthens. Leave an email and we will tell you as each measure lands.
No pitch, no listings. One email when the first report lands.
