A stalking horse bid is the first, court-approved offer inside a Canadian insolvency sale process that sets a floor price and terms every later, competing bid has to beat — in exchange for negotiated protections if that stalking horse bidder ends up losing the auction anyway.
The phrase, and much of the practice around it, is imported from US Chapter 11 bankruptcy proceedings. Canada has no bespoke statute section for a stalking horse bid — it operates through the same general sale-approval power as any other proposed transaction. CCAA s. 36(1) requires court authorization for any sale of assets outside the ordinary course, and a stalking horse's protections are simply one design choice a court has to find reasonable inside that authorization.
That means the stalking horse's protections don't get a free pass just because they were negotiated privately with the company first. Under s. 36(3), the court has to be satisfied the overall “process leading to the proposed sale … was reasonable in the circumstances” and that “the monitor approved the process,” which in practice means the monitor vets the bid protections — not just the price — before the process ever reaches a judge.
The commercial device is well understood even without a statutory name for it: a break fee and expense reimbursement, paid to the stalking horse bidder if a higher offer wins the auction instead. The size of that package is negotiated case by case and is not something a Canadian statute or regulator sets a standard figure for — it is disclosed and tested for reasonableness in the specific court motion approving the SISP, not fixed by rule.
A distressed retailer's monitor negotiates a stalking horse asset purchase agreement with an existing lender-affiliated buyer at $4,000,000, subject to a court-approved sale process that leaves the bidding open for 45 days for anyone willing to top it. No competing bid arrives inside the window. The court approves the $4,000,000 offer as the successful bid, having found under s. 36(3) that the monitor-supervised process was reasonable and that the price was fair given the market-testing the solicitation window provided.
See also: Sale and investment solicitation process · Share purchase agreement · Plan of arrangement.
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