Most due diligence processes in a business acquisition context
require a review of material contracts and, in particular, a review
of any restrictions on assignment of those contracts.
When a business enters into a long term commercial contract with
a customer, the identity of that particular counterparty may
influence the terms of the contract. A party deemed more favourable
may obtain a better price or better terms. Unless restricted
by enforceable anti-assignment provisions, these favourable
contracts can be very valuable in a traditional M&A
Contracting parties are often surprised to learn that, in an
insolvency context, these anti-assignment protections may be
ineffective. This is particularly true in the context of a sale of
the business of an insolvent party as a going concern.
Many of Canada's insolvency statutes provide for the
mandatory assignment of a debtor's contracts. This facilitates
the creation of value for all stakeholders by ensuring that a
debtor's business can be sold for the highest price possible by
reducing the risk that contract counterparties could hold up a
potentially beneficial transaction by refusing to consent to an
assignment of their contracts.
In many cases contracts may be assigned by court order to a
party who would be able to perform the contract as long as payment
of all arrears arising prior to that assignment are cured.
Counterparties whose contracts may be assigned in this manner
should receive notice that a court order assigning their contract
is being sought, including information on the proposed assignee of
the contract. Those counterparties will also be given a brief
period of time to oppose the assignment. However, opposition
simply on the basis that a particular contract has a non-assignment
clause or that one does not like the assignee will generally not be
a sufficient basis for opposition.
There are, however, limits to the court's jurisdiction in
this regard. For example:
there is no clear authority for a court to unilaterally amend
the terms of a contract, except insofar as is necessary to permit
the assignment of that contract. Therefore, one can gain some
comfort that the commercial deal that was reached under the
original contract will continue post-assignment; and
some contracts, such as collective agreements, cannot be
assigned in this manner.
Transactions in which material contracts may be assigned as part
of a going concern sale of an insolvent business can often move
forward quickly and, without close attention and immediate
reaction, one may find their contract assigned without express
Norton Rose Fulbright Canada LLP
Norton Rose Fulbright is a global legal practice. We provide
the world's pre-eminent corporations and financial institutions
with a full business law service. We have more than 3800 lawyers
based in over 50 cities across Europe, the United States, Canada,
Latin America, Asia, Australia, Africa, the Middle East and Central
Recognized for our industry focus, we are strong across all
the key industry sectors: financial institutions; energy;
infrastructure, mining and commodities; transport; technology and
innovation; and life sciences and healthcare.
Wherever we are, we operate in accordance with our global
business principles of quality, unity and integrity. We aim to
provide the highest possible standard of legal service in each of
our offices and to maintain that level of quality at every point of
Norton Rose Fulbright LLP, Norton Rose Fulbright Australia,
Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South
Africa (incorporated as Deneys Reitz Inc) and Fulbright &
Jaworski LLP, each of which is a separate legal entity, are members
('the Norton Rose Fulbright members') of Norton Rose
Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein
helps coordinate the activities of the Norton Rose Fulbright
members but does not itself provide legal services to
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should be
sought about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).