Bulk Sales in Ontario: Good and Bad News

July 12, 2016 | Jennifer Babe

The good news:

On June 9th, Bill 218 passed first reading. This Bill amends over fifty Ontario statutes, so you might have missed that Ontario is repealing its Bulk Sales Act (“BSA”). Ontario is the last Canadian province or territory to have a bulk sales statute. Once this law goes into effect, the cost and risk of doing deals in Ontario will be reduced.

This is good news for all parties doing deals where some or all of the vendor’s assets are located in Ontario, including the lenders who are financing the purchaser.

The BSA imposes a burden on the purchaser who fails to comply with the Act to account to the vendor’s creditors for amounts not paid them by the vendor. Such creditors may also apply to court to have the deal declared void and set aside. As such lenders have always had concerns that the deals they are funding are compliant with the BSA.

Bill 218 imposes no transition rule. Hence deals closed before it becomes law must still comply with the BSA and those closed after the BSA is repealed, will not have this burden.

The bad news:

Until repeal happens, it is to be remembered that the common practice of the parties waiving compliance with the BSA does not remove the application of the BSA to the subject transaction. We were reminded of this fact in the recent decision in Cieslok Media Ltd. v. Clarity Outdoor Media Inc., Outfront Media Canada LP, Intervenor, 2016 ONSC 1427, 129 O.R. (3d) 589

To save time, the parties in this case had agreed to waive compliance with the BSA. An unpaid creditor then moved to set the sale aside as void for non-compliance with the BSA.

The Court held that one cannot waive the application of the BSA. In considering the common practice of waiving compliance in transactions, the Court wrote as follows:

I am somewhat puzzled by these submissions. Section 4 of the BSA purports to protect not only the interests of the buyer in the transaction but also the seller’s creditors who have no say in any purported waiver. A review of the BSA reveals that there is no mechanism for waiving the statutory requirements contained in s.4. Moreover, the wording of the section makes clear that compliance with the section is mandatory: the word “shall” is used in describing the conduct of the parties. The fact that the companies have ignored this requirement for the sale of their own convenience should not be seen as a justification. Statutory legislation shapes and controls industry practice, not the other way around. [at para 13]

Consequently lenders who fund purchases of assets located in Ontario should remain concerned that the purchaser has required compliance with the BSA or obtained a court order exempting the transaction from the BSA. Failure to do so leaves the lender with the risk that the lender has funded a deal that may be set aside and a borrowing purchaser liable to pay the vendor’s creditors an amount equal to the purchaser price the purchaser paid the vendor.

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