A distressed sale runs on a court's approval, not a handshake with a struggling owner. Here is how the process actually works, and where a buyer's title is not as clean as it looks.
Key takeaways
STEP 01 OF 11
Once a debtor company is under an order made under the Companies' Creditors Arrangement Act, it “may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court” — and critically, the court “may authorize the sale ... even if shareholder approval was not obtained,” despite any requirement for shareholder approval under federal or provincial law. Read the provision at CCAA s.36. This is a real departure from an ordinary going-concern acquisition, where shareholder approval under CBCA s.189(3) would otherwise be required for a substantial asset sale.
STEP 02 OF 11
Section 36(3) sets out what the court considers before approving a sale: whether the process leading to the proposed sale was reasonable in the circumstances; whether the monitor approved the process; whether the monitor reported that the sale “would be more beneficial to the creditors than a sale or disposition under a bankruptcy”; the extent to which creditors were consulted; the effect on creditors and other interested parties; and “whether the consideration to be received ... is reasonable and fair, taking into account their market value.” A buyer's own offer is being judged against this checklist, not just against price.
STEP 03 OF 11
Where the buyer is related to the debtor company — which includes a director, an officer, or anyone with “control in fact” — s.36(4)–(5) requires the court to be satisfied that “good faith efforts were made to sell ... to persons who are not related” and that “the consideration to be received is superior” to any other offer received in the process. A related-party bidder should assume from the outset that its offer will be measured against this stricter standard, and structure the process accordingly.
STEP 04 OF 11
The court can authorize a sale “free and clear of any security, charge or other restriction,” with any such charge attaching instead to the sale proceeds under s.36(6) — this is a genuine benefit of buying through a CCAA process rather than negotiating directly with a distressed but not-yet-insolvent owner. But s.36(8) carves out a real exception: a sale “does not affect” a counterparty's existing right to use intellectual property licensed by the company. A buyer of distressed assets that include IP does not automatically get clean title against an existing licensee's use rights — that licence survives the sale regardless of how clean the rest of the title is.
STEP 05 OF 11
Section 36(7) requires the court to be satisfied the company “can and will make the payments” required for employee and pension priority claims under ss. 6(5)(a) and (6)(a) before authorizing the sale. This is a real gating condition, not a formality — a buyer should understand how the sale proceeds are expected to satisfy these obligations as part of assessing whether the court is likely to approve the transaction at all.
STEP 06 OF 11
An initial stay under the CCAA can run for “the period that the court considers necessary, which period may not be more than 10 days,” extendable on later application where the applicant satisfies the court that “circumstances exist that make the order appropriate” — see CCAA s.11.02. The stay affects the debtor's other creditors' ability to act, but a buyer should still confirm the current stay period and any pending extension application before assuming the sale process has as much runway as the deal timeline needs.
STEP 07 OF 11
Not every distressed acquisition runs through a CCAA sale process — sometimes the relevant event is a secured creditor enforcing directly. Under BIA s.244, a secured creditor intending to enforce against “all or substantially all” of an insolvent person's inventory, accounts receivable or other property must send a notice of that intention and cannot enforce until ten days after sending it, unless the insolvent person consents — and that consent “may not be obtained ... prior to the sending of the notice.” A buyer positioning itself to acquire assets through this route should understand this window is real and cannot be waived away before the notice is even sent.
STEP 08 OF 11
A compressed timeline and a motivated seller are not reasons to shortcut diligence — if anything, a distressed target carries additional risk categories a healthy target does not: unpaid statutory deductions, uncertain employee and pension claims, and litigation risk from other creditors challenging the process itself. See extra due diligence for a struggling business for the checks a buyer should add on top of an ordinary acquisition's own diligence list.
STEP 09 OF 11
Where the target's assets include intellectual property that is licensed to third parties, treat the s.36(8) survival of those licences as a fact about the asset, not a risk to be negotiated away — it cannot be. If the licensed IP was expected to generate exclusive value post-acquisition, revalue the asset against the reality that the existing licensee keeps its rights regardless of who now owns the underlying IP.
STEP 10 OF 11
A court-supervised sale process runs on its own timeline, set by the monitor and the court, and it will not wait for a buyer's financing to catch up. Where CSBFP or conventional bank financing is part of the plan, have the lender conversation well underway before bidding — a distressed seller's process has little patience for a bidder whose financing is still conditional once the court date is set. See applying for CSBFP funding on a business purchase for the eligible-asset test that still applies even in a distressed context.
STEP 11 OF 11
A CCAA sale process moves on the court's timeline, and a buyer that understands the six factors in step two — and, where relevant, the higher related-party bar in step three — is better positioned to have its offer approved than one that treats the process as a private negotiation with the same flexibility as an ordinary acquisition. Build your offer and your supporting evidence with those factors in mind from the outset.
Assuming a related-party bid is judged on the same standard as any other offer. It is not — s.36(4)–(5) requires proof of good-faith marketing to unrelated buyers and a superior offer. A related bidder that skips this expectation risks the court declining to approve the sale.
Assuming “free and clear” means clean title to everything, including licensed IP. Section 36(8) expressly preserves an existing licensee's right to use intellectual property the target licensed out — that right survives the sale regardless of how the rest of the title is cleared.
Treating a distressed process as a reason to shortcut diligence. A compressed timeline is a reason to prioritize diligence, not skip it — distressed targets carry real additional risk categories a healthy target does not.
Assuming the stay of proceedings gives unlimited time to close. An initial stay may run no more than 10 days before an extension is needed. Confirm the current stay period rather than assuming the deal timeline has more runway than it does.
To illustrate the mechanics only — the figures are a drafting choice for this example, not a benchmark.
Scenario A. An unrelated third-party buyer offers $1,100,000 for the debtor's operating assets through a court-supervised sale and investment solicitation process. The monitor reports the process was reasonable, well-consulted with creditors, and that the offer is superior to the liquidation alternative. The court authorizes the sale free and clear of existing security under s.36(6), with the charges attaching instead to the proceeds.
Scenario B. A director of the debtor company instead offers the same $1,100,000 for the same assets. Because the director is a related party under s.36(5), the court additionally requires evidence that good-faith efforts were made to solicit unrelated bids, and that no unrelated offer was superior to this one. Absent that evidence, the identical price and the identical assets do not clear the same bar the unrelated buyer cleared in Scenario A.
The assets, the price and the process are otherwise the same. Only the buyer's relationship to the debtor changed — and that alone materially raises what has to be shown before the sale is approved.
Not every distressed acquisition runs through the same legal mechanism.
Confirm which route applies before assuming any of the CCAA or BIA protections above are actually available on a specific deal.
Almost everything, but not intellectual property licences the target granted to third parties — s.36(8) expressly preserves an existing licensee's rights, which survive the sale regardless of how the rest of the title is cleared.
Yes, but as a related party the offer faces a higher bar — the court must be satisfied good-faith efforts were made to find an unrelated buyer and that no unrelated offer was superior.
The creditor cannot enforce against substantially all of the debtor's inventory or receivables until ten days after sending the notice, unless the debtor consents — and that consent cannot be obtained before the notice is sent.
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