On a recent transaction where a client was purchasing an Ontario
company we encountered some issues in conducting our due diligence.
On this deal, the vendor refused to disclose any personal
information of any contractors, employees, customers or other
relevant individuals related to their business to us or our client
due to confidentiality concerns. A timely amendment to the
Personal Information Protection and Electronic Act
("PIPEDA"), however, enabled us to get
past that hurdle.
What's the issue?
In BC, we rely on the Personal Information Protection
Act (British Columbia) to disclose and receive personal
information during the due diligence stage of a business
transaction. This act permits the disclosure of personal
information to potential purchasers evaluating a company without
obtaining consent. Various other provinces however, including
Ontario, do not have similar legislation (other than legislation
directed at health information) and are instead subject to PIPEDA.
Prior to the aforementioned amendment, there were no exemptions
similar to that in the BC Act and PIPEDA required a vendor to
obtain an individual's consent prior to disclosing their
personal information to a potential purchaser.
In June of this year various amendments to PIPEDA came into
force, including an exemption for obtaining consent to disclose
personal information in the context of a business transaction. In
particular, if parties are involved in a prospective purchase and
sale of an organization or its assets, merger or amalgamation of
two or more organizations, financing to an organization, or
charging, leasing or licensing an organization's assets (each
defined as a "Business Transaction"), such parties can
use and disclose personal information without obtaining any
individual's consent if certain conditions are met. One
exception to this exception is where the primary purpose of the
Business Transaction is the acquisition or disposition of the
personal information itself.
How does it work?
In order to avail oneself of the exception to obtaining consent
to use and disclose personal information under PIPEDA the following
conditions must be met:
the party disclosing, and the party
receiving the personal information must enter into an agreement
that requires the receiving party to only use the personal
information for purposes related to the proposed Business
Transaction, keep such personal information confidential and if the
proposed Business Transaction does not proceed, to return or
destroy such disclosed personal information;
the personal information disclosed
must be necessary both to determine whether to proceed with
proposed Business Transaction and, if proceeding, to complete it;
with respect to the use and
disclosure of personal information after the proposed Business
both parties to such Business
Transaction must enter into an agreement that requires both of them
to only use and disclose personal information for the purposes for
which it was collected or permitted to be used prior to the
completion of the such Business Transaction, keep such personal
information confidential and give effect to any withdraw of consent
from an individual done in accordance with PIPEDA;
the personal information must be
necessary to carry on the business that was the object of the
proposed Business Transaction; and
one of the parties must notify each
individual whose personal information was disclosed that the
proposed Business Transaction completed and that their personal
information was disclosed.
What does this mean?
For those of you familiar with the due diligence process with
respect to the disclosure of personal information in BC, such
process is now similar across the country. For anyone involved in
the acquisition, sale, lease or financing of a business, it is now
easier to obtain, use and disclose personal information to evaluate
and complete such transaction.
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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