Once a business files a notice of intention or a proposal, it stops being able to sell its own assets. Section 65.13 of the Bankruptcy and Insolvency Act puts the decision in front of a judge, tells the judge what to weigh, and adds a harder test when the buyer is an insider.
Key takeaways
SECTION 01 OF 09
Bankruptcy and Insolvency Act s. 65.13(1), marginal note Restriction on disposition of assets: “An insolvent person in respect of whom a notice of intention is filed under section 50.4 or a proposal is filed under subsection 62(1) may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court.”
The bar is not on selling. It is on selling outside the ordinary course. A restructuring company keeps trading and moving inventory; what it cannot do is sell the plant, the book of business or the division — exactly what a buyer wants. The deal is redirected to a judge, not blocked.
The second sentence is easy to read past: a court may authorise the sale “despite any requirement for shareholder approval, including one under federal or provincial law”. Outside insolvency that approval is mandatory — Ontario’s Business Corporations Act s. 184(3) needs a special resolution of each voting class, as Treadstone Law sets out on selling substantially all the assets. Underwater equity gets no veto.
SECTION 02 OF 09
The trigger is a filing, and there are two. A notice of intention under s. 50.4 names the trustee who has consented to act and lists creditors owed $250 or more; a trustee-reviewed cash-flow projection follows within ten days. A proposal under s. 62(1) is the other route; Treadstone Law covers the deal itself in buying a business mid-proposal.
From that filing, s. 69 imposes a stay: “no creditor has any remedy against the insolvent person or the insolvent person’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy”. The stay is what buys time for a sale. Subsection (2) narrows the section for an individual carrying on a business: a court may authorise a sale “only if the assets were acquired for or used in relation to the business.”
Subsection (3) then sets the notice duty, and its scope is worth reading closely: the applicant “shall give notice of the application to the secured creditors who are likely to be affected by the proposed sale or disposition.” Unsecured creditors get no notice right here, though consultation is a factor under subsection (4). Secured lenders are the constituency whose objection can stop the motion — their fights with each other are separate, and Treadstone Law calls a dispute over how sale proceeds get split one that “generally doesn’t affect a buyer once a proper sale has closed.”
SECTION 03 OF 09
Subsection (4), marginal note Factors to be considered, is the heart of the section. “In deciding whether to grant the authorization, the court is to consider, among other things,
(a) whether the process leading to the proposed sale or disposition was reasonable in the circumstances; (b) whether the trustee approved the process leading to the proposed sale or disposition; (c) whether the trustee filed with the court a report stating that in their opinion the sale or disposition would be more beneficial to the creditors than a sale or disposition under a bankruptcy; (d) the extent to which the creditors were consulted; (e) the effects of the proposed sale or disposition on the creditors and other interested parties; and (f) whether the consideration to be received for the assets is reasonable and fair, taking into account their market value.”
“Among other things” matters: a floor, not a ceiling.
SECTION 04 OF 09
Five of the six are about process. Only (f) touches the number, and it asks whether the price is “reasonable and fair” against market value — not whether it is the highest imaginable. Treadstone Law notes the same emphasis on the court-approval motion: the test is “whether the process used to market and sell the property was fair and reasonable”.
Paragraphs (b) and (c) give the trustee the central role, and (c) is the hard one: it forces a comparison against liquidation, not against the seller’s hopes.
Which is why these deals look the way they do. A stalking-horse bid answers (a) and (f) at once — Treadstone Law’s case study calls one “a baseline offer… that set the floor for the auction” and gave creditors a guaranteed outcome.
SECTION 05 OF 09
Subsection (5) is the section’s distinctive feature, and it is a gate rather than a factor. “If the proposed sale or disposition is to a person who is related to the insolvent person, the court may, after considering the factors referred to in subsection (4), grant the authorization only if it is satisfied that (a) good faith efforts were made to sell or otherwise dispose of the assets to persons who are not related to the insolvent person; and (b) the consideration to be received is superior to the consideration that would be received under any other offer made in accordance with the process leading to the proposed sale or disposition.”
The six factors still apply first. Then two conditions attach, joined by “and”, and the power exists “only if” both are met. Paragraph (a) demands a real market test; (b) demands the insider offer be superior to every other offer that process produced — a higher bar than reasonable and fair.
So a management buyout runs through a competitive process, not instead of one: the insider must beat the market it helped create. Treadstone Law explains the underlying suspicion in related-party transactions.
SECTION 06 OF 09
Subsection (6) extends the category rather than defining it: it “includes (a) a director or officer of the insolvent person; (b) a person who has or has had, directly or indirectly, control in fact of the insolvent person; and (c) a person who is related to a person described in paragraph (a) or (b).”
“Includes” means this sits on top of the general definition in s. 4, covering people “connected by blood relationship, marriage, common-law partnership or adoption”. “Has or has had” means resigning first does not help; “control in fact” reaches past the share register.
The population caught is wider than buyers assume: a departed director, an officer’s spouse, a sister company, a lender that exercised effective control.
SECTION 07 OF 09
Subsection (7) is the part buyers care about: the court “may authorize a sale or disposition free and clear of any security, charge or other restriction”. The continuation gets skipped: if it does, “it shall also order that… the proceeds… be subject to a security, charge or other restriction in favour of the creditor whose security… is to be affected by the order.”
The security is not extinguished. It moves onto the money — which is why a secured lender can be indifferent to a sale it cannot block. Delivery is by vesting order, which Treadstone Law describes as transferring title “free and clear of specified prior claims”, warning that not every interest is covered.
Two carve-outs sit alongside. Subsection (8) blocks approval unless the debtor “can and will make the payments… required under paragraphs 60(1.3)(a) and (1.5)(a)” — the employee and pension amounts in s. 60. Subsection (9) preserves an existing licensee’s right to use intellectual property while it keeps performing.
SECTION 08 OF 09
You gain certainty of title and lose contractual recourse. Treadstone Law states the trade in buying assets from an insolvent company: the buyer “carries more of the diligence burden and gets fewer contractual promises to fall back on”, and the trustee’s duty is “to maximize value for creditors as a whole… not to do the buyer any favours.” On as-is, where-is purchases it is blunter: recourse is “often to nothing at all”.
So what you buy is the order, not the agreement — which makes its wording the real negotiation. Treadstone Law names the two gaps in whether a court sale clears old debts: it misses liabilities you “expressly agree to assume”, and “doesn’t necessarily clear every conceivable claim — its wording controls.”
Liabilities that attach by statute sit outside it too — employment being the standard case, covered in employee liabilities in a distressed purchase. A vesting order clears claims against assets; it does not rewrite a statute.
SECTION 09 OF 09
The alternative is a private sale, and a private sale by an insolvent company is exposed. Under s. 96 a trustee can have a transfer at undervalue declared void — reaching back one year at arm’s length, and then only where the debtor “intended to defraud, defeat or delay a creditor”, but five years where the parties were not at arm’s length. Treadstone Law frames it identically on selling a failing business before bankruptcy: “the sale itself can potentially be challenged and unwound later.”
Section 65.13 answers that. A judge weighed the process, the trustee reported, the secured creditors were served, and the order stands. The scrutiny is not a cost of the route; it is the product.
The same architecture appears in s. 36 of the Companies’ Creditors Arrangement Act, with “monitor” for “trustee”. The Office of the Superintendent of Bankruptcy recorded 4,840 business insolvencies in Canada in 2025 — 3,714 bankruptcies and 1,126 proposals — so about one filing in four is a restructuring.
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