Anonymised, illustrative composite. An exclusion of liabilities binds the buyer and the seller. It does not bind the Board, which has a statutory claim against the acquirer of all or part of a business and may enforce it as if the acquirer had been the employer all along.
At a glance
A fabricator bought the equipment, inventory, work in progress and customer contracts of a smaller shop for $3,800,000 and hired 38 of its 41 employees. The purchase agreement was conventional: a defined list of assumed liabilities, and a sweeping exclusion of everything else, backed by a seller indemnity and a $150,000 holdback for twelve months.
The seller's WSIB account was eleven months in arrears — $221,000 of premiums with $47,000 of interest and penalties on top — and the data room contained a statement of account that stopped at the previous fiscal year end.
Nine weeks after closing the Board assessed the buyer for the full $268,000. The buyer's first response was to point at the exclusion clause. The exclusion is a perfectly good contract, and it allocates the loss between the buyer and the seller. It has no effect on the Board's own statutory claim, which is not a contractual claim and was not a party to the negotiation.
By then the seller corporation had distributed the proceeds and was in the process of being wound up. The holdback covered $150,000 of the $268,000; the balance was recovered from nobody.
The unrecovered amount was $118,000, or about 3.1% of the purchase price, against a diligence budget for the whole transaction of $61,000. The fix would have cost nothing at all: a clearance dated at closing and a direction in the funds flow paying the WSIB account directly out of the proceeds, ahead of the seller.
The buyer had in fact asked for a clearance and received one. It was dated forty days before closing, at signing. That is the trap the section sets, and it is a matter of arithmetic rather than judgment — a clearance is a statement about a date, and s.146(2) attaches to a different date.
Section 146(1) sets the trigger and the exceptions in one sentence. The section applies “when an employer sells, leases, transfers or otherwise disposes of all or part of the employer's business either directly or indirectly to another person other than a trustee in bankruptcy under the Bankruptcy and Insolvency Act (Canada), a receiver, a liquidator under the Winding-up and Restructuring Act (Canada) or a person who acquires any or all of the employer's business pursuant to an arrangement under the Companies' Creditors Arrangement Act (Canada)”.
Read the trigger for how wide it is: sells, leases, transfers or otherwise disposes; all or part; directly or indirectly. A division, a product line, a single plant, a share transaction reorganised as an indirect disposition — all of them are inside it. Then read the exception list for what it is. Every one of the four is an insolvency office-holder or an insolvency process. There is no exception for an arm's-length going-concern purchase, no exception for a purchase agreement that excludes the liability, and no exception for a buyer that did not know. Structuring cannot reach it, because the only planning route the section offers is a route through an insolvency proceeding.
Section 146(2) then states the liability: “The person is liable to pay all amounts owing under this Act by the employer immediately before the disposition.” The unit is a snapshot at the disposition, not a period, and that is why a clearance dated at signing proves nothing. Section 146(3) supplies the enforcement: “The Board may enforce the obligation against the person as if the person had been the employer at all relevant times.”
One limit on the Board's discretion is worth knowing, because it is the only one. Section 148(1) requires the Board to develop policies “governing the circumstances in which the powers under subsections 12 (8) and (9), subsection 12.2 (3) and sections 76, 137, 139 and 146 are to be exercised and setting out criteria governing the fair, reasonable and timely exercise of those powers”, and s.148(2) provides that “The Board shall be bound by the policies in its administration of those sections.” A buyer facing a s.146 assessment has a policy document to argue against, which is not the same as a defence but is more than nothing.
The buyer paid, drew the holdback, and wrote off the balance. Its next three acquisitions carried three changes to the closing checklist: a clearance requisitioned to be dated on the closing date itself, a funds-flow direction paying any WSIB balance to the Board rather than to the seller, and a condition to closing that the seller's account be current as at closing rather than as at signing.
The WSIB's own description of the certificate makes the timing point plainly. A clearance “is a unique number issued by the WSIB to registered businesses, which shows that a business, contractor or subcontractor is registered and up-to-date with us, including keeping current with premium payment and reporting”, and “This clearance number is valid for all your contracts and is valid for up to 90 days.” A ninety-day validity window is an administrative convenience for a contractor engaging subcontractors. It is not a warranty about the state of an account on any particular later day.
Paying the Board directly from the closing funds flow costs the buyer nothing — the money was leaving the account either way, and it simply goes to a different payee. That is the entire remedy for a $118,000 loss, and it is available on every asset transaction in Ontario where the seller has ever had employees.
The alternative that does not work is pricing the risk through the indemnity. An indemnity is worth the solvency of the indemnifier, and a seller that has just distributed its proceeds and begun winding up is the paradigm case of an indemnity that is worth its paper. Compare an undischarged lien from a repaid equipment loan, where a registry search rather than a covenant was the answer, and assumed liabilities in an asset transaction for the general limits of an exclusion clause.
The tell was that the WSIB statement of account in the data room ended at the previous fiscal year end while every other financial document ran to the most recent month. A seller producing eleven months of management accounts and only twelve months of account statements for one regulator is telling you which regulator to call.
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