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In a decision sure to pique the interest of the securitization
bar, Ontario's Superior Court of Justice has found the
Bulk Sales Act inapplicable to a proposed lease
and equipment securitization transaction. The case,
Cle Leasing Enterprises Ltd. (Re), involved an
asset originator that had applied for a BSA exemption order in the
context of a lease securitization transaction that would extend to
present and future sales under a program.
In a decision dated June 9, the Court ultimately found that
the proposed transaction did not fall within the BSA's
definition of "sale in bulk", which must be outside the
usual course of business or trade of the seller. In the present
case, however, the Court distinguished the proposed
transaction from those captured by the BSA, stating that
[t]he Proposed Transaction employs the legal device of a sale
for the purpose of raising financing in the ordinary course of the
operations of the applicants' business. The applicants no doubt
considered a number of financing options before selecting the form
of the Proposed Transaction. They could have approached a financial
institution to borrow money, charging the Leases and Leased
Equipment as security for that loan. The definition of
"sale" in the BSA makes it clear that the
Act would not apply to that form of financing. Why, then, should
the use of securitization as the means-of-choice for financing
attract scrutiny under the BSA? It is merely another
financing option.
As such, the court concluded that
the sale is not made out of the ordinary course on the basis
that the purpose and design of the Proposed Transaction is to
secure ordinary course financing for the applicants.
In my view the BSA was not intended to regulate,
nor by its terms does it result in the regulation of, an ordinary
course financing technique such as the type of asset securitization
involved in the Proposed Transaction.
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