Anonymised, illustrative composite. A share purchase left the registration where it was, so counsel treated the regulatory question as closed. The registrar's definition of an interested person reaches whoever provided the financing, and one line of the regulation then removes that person's capital from the test the registrant has to pass.
At a glance
The buyer had run the target's largest branch for nine years and was buying from a retiring founder: three storefronts, 22 staff, gross bookings of $19,400,000, EBITDA $610,000. A share purchase suited both sides — the founder wanted capital-gains treatment, the buyer wanted the registration under the Travel Industry Act, 2002 undisturbed.
Financing was ordinary: $900,000 of the buyer's money, $1,600,000 of senior bank debt, and $900,000 of mezzanine at 12% with warrants over 15% of the equity. The lender took no board seat and no shares at closing.
Counsel's regulatory memo ran to one paragraph and, as far as it went, was correct. s.8(3) says “A registration is not transferable”. In a share purchase nothing is transferred: the registrant keeps its registration and its trust account, and the non-transferability rule that dominates asset deals in this sector never engages.
Three things sat past it. First, the registrar finds out: s.15(1) requires notice within 30 days of a share transfer giving anyone beneficial ownership or control of 10 per cent or more, and O. Reg. 26/05 s.18 within five days of a change to the application information.
Second, the registrar can act. Under s.10(1) it may refuse, suspend or revoke if, in his or her opinion, the registrant “is not entitled to registration under section 8”. Entitlement under s.8 is a continuing condition, not a gate cleared once.
Third, s.8 does not look only at the registrant. s.8(5) deems a person an interested person in respect of another where they are associated, or where “in the opinion of the registrar”, the person “has or may have a beneficial interest in the other person’s business”, exercises or may exercise control over it, or “has provided or may have provided financing either directly or indirectly to the other person’s business”. A lender is named in the definition.
The balance sheet was tight for an industry-specific reason: under O. Reg. 26/05 s.27(1) a registrant “shall maintain a trust account for all money received from customers for travel services”, and that money is matched by a liability to customers, so it does not help the ratio that matters.
Stripped out both sides, the registrant showed current assets of $980,000 against liabilities of $1,190,000 — a deficit of $210,000. The test is s.24(2): a registrant “shall maintain current assets greater than its current liabilities”.
The plan was obvious: draw $350,000 of the mezzanine and advance it into the registrant as subordinated working capital. Assets $1,330,000, liabilities $1,190,000, positive $140,000, test satisfied.
It was not satisfied. s.24(3) says the calculation “shall not include” either the value of security provided under s.25(1) or “capital belonging to any person who is an interested person in respect of the registrant for the purposes of subsection 8 (5) of the Act”. The lender is an interested person under s.8(5)(c) on the face of the definition, so its money is deleted from the test. The registrant was back at negative $210,000, with the $350,000 now inside the corporation as a repayable liability — on a strict reading, worse than unchanged.
The question is not whether the registrant shows positive working capital, but whether it shows positive working capital from capital that is not an interested person's.
The phrase the regulation uses is capital belonging to an interested person. Money advanced by a lender still belongs to the lender; money subscribed for shares stops belonging to the subscriber once paid up. That distinction is what the drafting turns on, and it is the route through.
O. Reg. 26/05 s.5 adds that on registration or renewal “Every other person who is an interested person in respect of the applicant for the purposes of section 8 of the Act also satisfies the conditions in paragraphs 2 to 5” — no money owing to the administrative authority, no outstanding judgment, no unreimbursed claims paid from the Travel Industry Compensation Fund, security posted where required. The lender is assessed against those in its own right, and under s.8(1)(d)(ii) entitlement can be refused “having regard to its financial position or the financial position of an interested person” in respect of the corporation.
Note what this test is not: a percentage. The 10 per cent thresholds in ss.9 and 15 govern disclosure, not who is an interested person. A lender holding no shares is inside s.8(5) for having written a cheque.
The capital stack was rebuilt around the registrant rather than inside it. The mezzanine moved up to a new holding company owning the registrant, secured on the holdco's shares rather than the registrant's assets, so it is off the registrant's balance sheet. Of the buyer's equity, $400,000 was subscribed into the registrant for shares rather than advanced as a loan. The registrant closed at $1,380,000 against $1,190,000 — positive $190,000, on money that had stopped belonging to anyone but the corporation.
The registrar was told about the lender anyway, in the s.15(1) notice and a covering letter: s.8(5) reaches it whether disclosed or not, and a discovered omission is a worse first impression than a disclosed financier. The rebuild cost 19 days, $34,000 and 75 basis points on the coupon. See mezzanine financing in a business acquisition for the ordinary commercial trade-offs of that move, and a seller note the bank refused to postpone for the version of the same argument between lenders.
Close as planned and nothing happens on closing day: the registration is intact, the notice goes in, the business trades.
What follows is a review, not a revocation. The registrant files under s.22, the working-capital statement shows the deficit once the mezzanine advance is excluded, and a file opens. Under s.11(1) the registrar must serve a notice of proposal before revoking and s.11(2) gives 15 days to request a Licence Appeal Tribunal hearing. The damage is not the order. It is what a registrant does while a proposal to revoke is outstanding: consortium membership, supplier credit and the ability to take a customer deposit all rest on a registration nobody has reason to doubt, and the doubt is the cost.
The tell was in the term sheet, not the purchase agreement. The word the statute uses to catch a lender is financing, and the buyer's funding structure was inside the registrar's test set from the debt schedule's first draft.
It generalises. In a share purchase of a regulated business it is tempting to check the obvious thing — the registration need not move — and stop. The better question is who the regulator may look at, and the answer is broader than the cap table: see a seller refusing to subordinate a vendor take-back for how the same lender-position question plays out where the financier is the vendor.
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.
