A vesting order sounds absolute — “free and clear” — and mostly is, for security interests and charges. It is not absolute for everything, and the gap between what it clears and what it preserves is exactly where an unwelcome surprise shows up after closing.
Key takeaways
A vesting order is the single most powerful tool a distressed-asset buyer can get — and the most commonly overstated. It clears a great deal. It does not clear everything, and assuming it does is how a buyer ends up owning title that comes with someone else’s existing rights still attached.
CCAA s. 36(6) lets a court “authorize a sale or disposition free and clear of any security, charge or other restriction,” with the charge attaching to the proceeds of the sale instead. This is the mechanism worth understanding precisely: the underlying claim doesn’t vanish. It moves — from the asset you’re buying to the cash the estate receives for it. A secured creditor whose charge attached to the manufacturing equipment before the sale now has a claim against the sale proceeds instead, and the equipment itself is clean.
One specific carve-out in the same section is the least-written-about, most consequential line in this cluster. CCAA s. 36(8) states that a sale or disposition “does not affect” a counterparty’s existing right to use intellectual property licensed by the company. For a buyer of manufacturing, technology-adjacent or design-heavy assets, this matters concretely: if the target had already licensed the use of a patent, a design, or a piece of proprietary tooling to a customer or partner before the insolvency filing, that licensee keeps the right to use it — even after you buy the underlying IP “free and clear” of everything else the vesting order names.
A sale to a related person carries its own test under CCAA s. 36(4)–(5): the court authorizes it only where “good faith efforts were made to sell… to persons who are not related” and “the consideration to be received is superior” to any other offer in the process — and “related” is defined broadly enough to include anyone with “control in fact,” not just a formal directorship. A sponsor buying through an existing platform company into a related target has to be prepared to document both conditions, not just show up with the best headline price.
Outside a CCAA proceeding, neither the BIA’s receiver-appointment section nor the ordinary trustee-sale power spells out an equivalent statutory free-and-clear formula the way CCAA s. 36(6) does for a court-supervised restructuring sale. The closest hook in a BIA file is the broad language in BIA s. 243(1), which lets a court authorize a receiver to “take any other action that the court considers advisable” — wide enough that a specific court order in a receivership file can include vesting-style relief, but it is a discretionary grant made order by order, not a self-standing statutory formula like s. 36(6). Where a vesting order exists in a BIA receivership or trustee file, it is that specific order that governs, not the Act itself. That is exactly why the order in front of you, not the process label, is what a buyer needs to read before assuming any equivalent protection applies.
Treadstonelaw.ca is unambiguous on this specific point: “unpaid amounts owing on the seller’s existing equipment leases are a liability of the seller or the insolvent estate, not something the buyer automatically assumes, unless the purchase agreement specifically provides for the buyer to take over.” If a buyer doesn’t want a specific piece of leased equipment or its associated debt, the fix is to “make sure the lease is expressly excluded from what you’re purchasing, so it clearly stays behind with the seller.” And keeping equipment a buyer does want “usually requires the lessor’s consent to assign or assume the lease” — a step that has to happen on its own timeline, not as an automatic incident of the sale closing.
Reading an order or agreement — the four questions
A worked scenario. A fund buys the manufacturing assets and proprietary tooling designs of an Ontario auto-parts supplier through a CCAA-approved vesting order stated to be “free and clear of all security, charges, liens and encumbrances.” Six months after closing, a long-standing customer asserts a perpetual licence to manufacture a specific component design using that same tooling, granted under a supply agreement signed three years before the CCAA filing. Under s. 36(8), that licence survives the vesting order regardless of its “free and clear” language — the licence was never a security interest, charge or restriction of the kind s. 36(6) reaches. Separately, an equipment lease with a $180,000 remaining balance was expressly excluded from the asset purchase agreement’s schedule of assumed liabilities and stays with the estate, exactly as the agreement specified, with the lessor’s consent obtained separately before the tooling itself was moved to the buyer’s facility.
A vesting order (or its absence) doesn’t settle the question of registered security on its own — it settles what the court authorized as of that specific order. Confirming what is actually registered against the target’s assets, and obtaining discharges or subordinations from anyone still shown, is separate diligence work regardless of which insolvency channel the sale runs through, and it matters more, not less, on a purchase where no vesting order exists at all.
No — CCAA s. 36(8) preserves an existing licensee’s rights regardless of a vesting order’s free-and-clear language. That protection runs to the licensee, not to whoever owns the underlying asset afterward.
No, unless the purchase agreement specifically says the buyer assumes it. Confirm exclusions in writing, and separately obtain the lessor’s consent for any lease you do want to keep.
Not on the same statutory basis — the BIA doesn’t spell out an equivalent formula. Check the specific court order in that file rather than assume CCAA s. 36(6) applies by default. See buying from a trustee in bankruptcy for the trustee-sale mechanics themselves.
A short call walks through the specific order or agreement language on your target file.
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