Divestiture

How BC law treats it

Most divestitures are voluntary. A company sells a division, subsidiary or product line by an asset sale or a share sale. Under s. 301 of the Business Corporations Act, SBC 2002, c 57 (BCBCA), a BC company may sell, lease or otherwise dispose of all or substantially all of its undertaking, other than in the ordinary course of business, only if authorized by special resolution. Shareholders who vote against are entitled to dissent and be paid fair value for their shares (s. 238). Divestiture can also be imposed. Under s. 92 of the Competition Act, the Competition Tribunal can order a party to a merger that substantially lessens or prevents competition to dispose of assets or shares, and many mergers are cleared on a negotiated undertaking to divest. Under Part IV.1 of the Investment Canada Act, the federal government can order a foreign investor to divest a Canadian business on national security grounds. By contrast, the BC Securities Act sanctions misconduct with penalties, disgorgement and trading bans, not forced sale of businesses. Carve-outs need careful separation: transferring contracts (which may need consent), IP, employees and shared services, and often a transition services agreement. Under s. 97 of the Employment Standards Act, employment is deemed continuous when a business is sold and employees continue with the buyer.

What it means for your business

Selling a division can raise cash, sharpen focus or prepare a company for a larger sale. The work is in the separation: identifying which contracts, employees, IP and systems go with the unit, and getting the required approvals. Missing a shareholder vote, a landlord or customer consent, or a competition filing can delay closing, reduce the price or even unwind the deal. Example: A BC manufacturing group sells its packaging division to a competitor. The parties sign an asset purchase agreement with a transition services agreement for IT support, and the seller obtains landlord consent to assign the plant lease.

Risks and common mistakes

Not checking whether the sale is of substantially all the undertaking and needs a special resolution. Overlooking change of control or anti-assignment clauses in key contracts. Leaving shared IP, systems or staff unallocated between seller and buyer. Ignoring employment continuity and termination obligations for transferred employees. Starting the sale without assessing Competition Act or Investment Canada Act review.