Use reasonable care when purchasing assets from a company.

Me Pascal Comeau, lawyer

Buyers must be very careful when purchasing assets from a company in bankruptcy in order to prevent surprises once they take possession. It is important to remember that according to Section 45 of the Labour Code, a purchaser may be liable for all the rights and obligations of a former employer.

In a decision early this year, the Court of Appeal determined that a company that had purchased the assets of a bankrupt company could be sued by the administrators of that company. The administrators had a legal obligation to pay the last six months of salary to their employees. This payment transfers the rights of the employees to the administrators of the former company who can then sue the new owners because, as per Section 45 of the Labour Code, the new owners assume the rights and obligations of the former owners upon purchasing.

Therefore, if you wish to purchase a company in bankruptcy or the assets of such a company, remember to consider potential claims from the company’s employees and/or administrators. Do not take for granted that a bankruptcy extinguishes all obligations.

LAW COLUMN 02/2012

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