Canada: Bulk Sales Repeal Headlines Ontario's Burden Reduction Bill

Your Ontario bulk sales headaches may soon be a thing of the past. Bill 218, the Burden Reduction Act, 2016, which would repeal the 99 year old Bulk Sales Act ("BSA"), passed first reading in the Ontario legislature on June 8, 2016. While from an M&A perspective the proposed repeal of the BSA is the big news in Bill 218, the Bill contains a wide range of additional provisions aimed at modernizing laws affecting Ontario businesses. Among these are amendments to the province's Business Corporations Act and Personal Property Security Act as well as enabling legislation that is required for the implementation of certain international commercial law conventions, of which some are already in force in Canada and others may come into force in the future.

Commercial Law Reform: Farewell to the Bulk Sales Act

As some of our readers may have experienced firsthand, compliance with Ontario's Bulk Sales Act can add significant costs and delay to M&A transactions structured as a purchase and sale of assets, often causing parties to rely on compliance waivers and indemnities from failure to comply as a practical but less than ideal solution. When it comes to repeal of bulk sales legislation, Ontario is last to the party among Canadian common law jurisdictions – the other long-time holdout, Newfoundland & Labrador, having repealed its bulk sales law about eight years ago. (For U.S. readers, this trend parallels the repeal by most states of the equivalent UCC Article 6.) Nowadays, the purpose of the BSA – to protect unpaid trade creditors against a vendor's bulk sale of all or substantially all of its assets – is generally achieved through the operation of other more modern statutes.

Bill 218 also makes a small change to Ontario's Personal Property Security Act (PPSA). Under the amendments as proposed, the PPSA would allow a debtor to waive, in writing, the right to receive a copy of a verification statement following the registration of a financing statement or a financing change statement.

Corporate Law Reform: A Few Small Steps

The proposed changes to Ontario's Business Corporations Act (OBCA) are relatively minor:

  • Board meeting location: Changing the "default" rule regarding the site of board meetings in s. 126(1) and (2) to be, essentially, no restriction (subject to the articles and by-laws), from the current rather complex rule that restricts the range of permissible meeting locations unless the articles or by-laws say otherwise;
  • Board meeting quorum: Eliminating the two-fifths minimum quorum for board meetings in s. 126(3), giving OBCA corporations more latitude in establishing quorum rules in their articles or bylaws;
  • Shareholder meeting quorum: Replacing the confusing quorum requirement for shareholder meetings in s. 101(1) with clearer wording borrowed from the corresponding s. 139(1) of the CBCA (stating that quorum is achieved if the holders of a majority of the shares entitled to vote at the meeting are present in person or represented by proxy);
  • Shareholder communications: Requiring a corporation to include email addresses in its securities register to the extent that it has been provided with them, under s. 141(1).

International Commercial Conventions: Embracing International Standards

Bill 218 also provides for the amendment or adoption of several pieces of legislation relative to international commercial conventions, as follows:

  • International Commercial Arbitration Act, 2016 replaces the existing ICAA, affirming that Ontario law recognizes the New York Convention of 1958 as well as incorporating the UNCITRAL Model Law (the existing ICAA refers only to the Model Law, although the omission of the New York Convention is widely regarded as an oversight and has had little practical effect). This legislation also institutes a common 10-year limitation period for the enforcement of arbitral awards in Ontario under both the ICAA and the Arbitration Act, 1991, Ontario's domestic arbitration statute;
  • International Recognition of Trusts Act, 2016 implements the Convention on the Law Applicable to Trusts and on their Recognition (this Convention has been in force in all other provinces, except Quebec, for more than a decade);
  • Amendments to the International Sale of Goods Act (including changing the Act's name to the International Sales Conventions Act) that would pave the way toward recognition of the four-year limitation period provided for in the Convention on the Limitation Period in the International Sale of Goods (the Limitation Convention is a bolt-on to the U.N. Convention on Contracts for the International Sale of Goods, which Canada ratified in 1992.) From a Canadian perspective, it is noteworthy that the U.S. and Mexico have been Limitation Convention states for well over 20 years;
  • International Choice of Court Agreements Convention Act, 2016gives effect to the Hague Choice of Court Agreements Convention, which (subject to ratification by Canada) empowers and (generally) requires courts of Convention states to respect exclusive jurisdiction agreements, while also creating consistent rules for the recognition and enforcement of judgments from other Convention states (this Convention is currently in force only in Mexico and the EU (except Denmark), with Singapore set to join later in 2016);
  • International Electronic Communications Conventions Act, 2016 gives effect to the UN Convention on the Use of Electronic Communications in International Contracts, subject to ratification by Canada (this Convention has been accepted, ratified or acceded to by the Russian Federation, Singapore and a handful of other countries).

As noted, the last three of these will take effect only upon Canada's ratification of the Conventions in question. To the best of our knowledge, no timelines have been announced with respect this process (nor is there any certainty of eventual ratification).

What's Missing

Bill 218 includes a number of initiatives that were proposed by an expert panel on red-tape reduction that reported to the Minister of Government and Consumer Services in 2015. However (as those of you who recall our earlier post on the expert panel report may have noticed), the Bill addresses only a minority of the panel's recommendations. For example, there is nothing in the Bill about eliminating the OBCA's Canadian residency director requirement and the consent requirement for electronic meetings has not been changed. The Bill also includes amendments to a number of statutes that, for reasons of space and commercial significance, we have not discussed here. Given the Government's commitment to modernizing commercial legislation and reducing bureaucratic impediments to economic growth, we expect that other expert panel recommendations may be under consideration for inclusion in similar legislation in the future.

Next Steps

Having passed first reading, Bill 218 will be referred to a committee of the legislature for further review before being voted on and passed into law (if all goes well) at a later point in the current legislative session. As noted, schedules of Bill 218 that establish legislation in anticipation of Canada's ratification of certain international Conventions will not come into force unless and until ratification takes place.

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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