Anonymised, illustrative composite. An asset purchase of a temporary-help agency closed on time only because the buyer's own irrevocable letter of credit was in the Director's hands before the seller's licence — and its security — could be released.
At a glance
A private buyer agreed to acquire, by asset purchase, a light-industrial temporary-help agency operating across the GTA: trailing revenue $7,600,000, purchase price $3,900,000. The seller had held a valid licence to operate as a temporary help agency under Part XVIII.1 of the Employment Standards Act, 2000 (ESA) for six years, current and in good standing, with no complaints on file. The transaction structure — assets and the operating name, not shares — was chosen for the ordinary reasons: a cleaner corporate history for the buyer and no assumption of the seller's pre-existing liabilities.
The purchase agreement's regulatory schedule listed the ESA licence as an asset to be assigned at closing, on the assumption that the buyer would simply carry on under it while its own application processed in the background.
That assumption is wrong on the face of the Act. Section 74.1.9 states, in full: “A licence is not transferable.” An asset purchase does not carry the seller's licence to the buyer the way it carries a lease or an equipment schedule; the buyer must hold its own licence before it books a single shift under the acquired operation, obtained through its own application under section 74.1.3.
Section 74.1.3(1) sets four conditions for an application: submitting prescribed information, paying the prescribed fee, “providing the Director with the prescribed security,” under clause (c), and complying with any additional prescribed requirement. The security clause is where the deal's real timing risk sat. O. Reg. 99/23, made for the purposes of that clause, prescribes the form and amount: the security must be “in the form of… an electronic irrevocable letter of credit that… contains a provision providing for the automatic renewal of the irrevocable letter of credit following the expiry date… permits partial drawing without any conditions… is issued by a bank that is listed in Schedule I, II or III of the Bank Act (Canada)…,” or an equivalent surety bond, and “the security must be in an amount so that the total security held by the Director in respect of the applicant is $25,000.”
$25,000 is a modest number against a $3,900,000 purchase price, but it is not a modest number against the buyer's committed acquisition financing on the day of closing. The buyer's senior facility had been sized and syndicated to the deal to the dollar; the $25,000 letter of credit was an unbudgeted draw against the same operating line the acquisition debt was drawing on, arranged with the buyer's bank in the ten business days between discovering the s.74.1.9 non-transferability point and the scheduled closing date.
The seller's own $25,000 letter of credit did not simply become available to fund the buyer's requirement, either. Section 4(7) of O. Reg. 99/23 lets the Director continue to hold a licensee's security for up to 12 months after the licence expires, is cancelled or is voluntarily surrendered — longer if a complaint has been filed — specifically so a departing licensee's security stays available to satisfy orders against it after the fact. The seller's letter of credit was frozen with the Director for the duration of that retention period, unrelated to whether the business itself had changed hands.
The rule that decided the timeline was the interaction of two provisions from different instruments: the ESA's flat non-transferability rule in section 74.1.9, and the regulation's security amount in section 4(1) of O. Reg. 99/23, cross-referenced back to the licensing condition in ESA section 74.1.3(1)(c). Read together they establish that a change of operator is, for licensing purposes, always a new applicant — there is no abbreviated or expedited path for an acquirer of an existing book of business, and no provision that lets an incoming operator draw on the outgoing operator's posted security even temporarily.
The buyer's application under section 74.1.3 was filed in parallel with the purchase agreement's diligence period, with the letter of credit application submitted to its bank the same week, specifically so the Director's decision under section 74.1.4 would land before the scheduled closing date rather than after it.
The Director issued the buyer's new licence four business days before closing, with the buyer's own irrevocable letter of credit on file. Closing proceeded on schedule with the buyer operating under its own licence and its own security from day one; there was no period in which the acquired business ran without a licensed operator behind it. The purchase agreement was amended before signing to make issuance of the buyer's licence — not mere submission of the application — a condition precedent to closing, and to strip the earlier “assignment of the licence” language from the regulatory schedule entirely.
Closing on the original assumption — that the seller's licence carried over — would have meant operating a temporary-help agency without a licence at all from day one of the buyer's ownership, since section 74.1.9 makes clear there is nothing to assign. Booking a single shift in that condition would have been outside the licensing regime altogether, exposing the buyer's own clients to the separate prohibition ESA section 74.1.1(2) places on a client that knowingly uses an unlicensed agency — turning a financing-timeline problem into a client-facing compliance failure the buyer would have had to disclose to the very customers the deal was built to retain.
Even discovered in time, treating the security requirement as a formality rather than a financing item would have cost the deal its closing date: a $25,000 irrevocable letter of credit meeting O. Reg. 99/23's specific form requirements is a bank product with its own underwriting and issuance lead time, not a wire the buyer can send the morning of closing.
The tell was in the purchase agreement's own asset schedule, not in the regulation. Listing a government licence as an asset “to be assigned” is the giveaway that no one checked whether the licensing statute permits assignment at all — for most provincial regulatory licences, including this one, it does not, and the schedule should instead read as a closing condition requiring the buyer's own licence to issue.
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