A recent Alberta appellate decision establishes that a trustee
in bankruptcy may sell a franchise agreement to a third party, in
spite of objections by the franchisor, under the Bankruptcy and
Insolvency Act (BIA). The Alberta Court of Appeal's
decision in Ford Motor Company of Canada Ltd v Welcome Ford
Sales Ltd contains three important messages for
If a franchisee goes bankrupt, there is a risk that the trustee
in bankruptcy will be able to assign the franchise agreement to a
new franchisee without the franchisor's consent.
Even if a franchise agreement is expressly referred to as a
contract for "personal service," it may be deemed a
standard commercial agreement capable of assignment.
Franchisors wishing to oppose the assignment should be prepared
to marshal strong evidence to establish that the proposed assignee
is not capable of performing under the franchise agreement.
In January 2010, Ford Motor Company discovered that funds had
been misappropriated at one of its franchisees. On the application
of one of the franchisee's creditors, a court ordered the
franchisee into receivership and held that no agreements then in
place (including the franchise agreement) could be terminated
without consent of the court. Ford made clear early on that it
would not consent to the assignment or sale of the dealership
agreement to any party. A few months later, however, a judge
ordered that the trustee may nevertheless market the dealership
agreement and postponed Ford's request to terminate the
The franchisee was later assigned into bankruptcy. BIA section
84.1 allows a court to assign a bankrupt's rights and
obligations under an agreement to any person specified by the court
who agrees to the assignment — even without the consent
of the other party to the agreement. The Bankruptcy Court later
approved the trustee's application to assign the dealership
agreement to an existing Ford dealer, pursuant to section 84.1 of
the BIA, over Ford's objection. The decision was affirmed
by the Alberta Court of Appeal.
The courts rejected Ford's argument that the agreement
was not assignable because it was personal in nature. Although
section 84.1(3) of the BIA excludes some agreements from assignment
on the basis that they "are not be assignable by reason of
their nature", the courts held that parties cannot insulate a
contract from assignment simply by including a clause describing
the agreement as "personal." The courts found that the
dealership agreement was actually a commercial one rather than a
personal one that could be performed by many others. This may have
implications beyond the BIA, as the contractual remedy of specific
performance has also been historically denied for contracts of
Section 84.1(4) of the BIA also required the courts to consider
whether the assignee was capable of performing its obligations
under the franchise agreement. In this case, Ford did not adduce
any of its own evidence on this issue but, instead, attempted to
argue that the there was insufficient evidence in the record to
conclude the proposed assignee would be able to perform the
obligations of the agreement. The courts rejected this argument.
The proposed assignee had an excellent track record of operating a
profitable Ford dealership elsewhere.
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.
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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.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan 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.
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