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after the BSA is repealed, will not have this burden.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
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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