On June 8, 2016 Bill 218 (the Burden Reduction Act, 2016)
passed first reading. The Bill is part of a provincial government
initiative to, in part, reduce the regulatory burden on Ontario
businesses. Schedule 3 of the Bill repeals Ontario's Bulk Sales Act (BSA). The BSA was enacted
in 1917, and is intended to protect unpaid trade creditors (i.e.
the people a seller is indebted to for goods, money or services
furnished for the purpose of enabling the seller to carry on his or
her business) from "bulk sales" by a seller of all or
substantially all of its assets over a short period of time.
The consequences of not complying with the BSA can be
significant, and can include a non-compliant transaction being set
aside by a court upon the application of a trade creditor of the
seller. As such, the BSA is an important consideration for both the
buyer and the seller in an Ontario M&A transaction that is
structured as an asset deal.
Typically, the parties to an asset purchase transaction will
deal with the BSA in one of three ways:
#1 – Follow the procedure for compliance with the
Prior to closing the transaction, the seller must disclose to
the buyer the names and amounts owing to all the seller's trade
creditors, and the buyer must confirm (in accordance with the BSA)
that such trade creditors have been paid. A few days after the
transaction closes, the seller must file with the court, an
affidavit confirming the particulars of the sale and that trade
creditors have been paid.
Depending on the number of trade creditors involved, and the
timing constraints surrounding getting the deal done, this route is
not always practicable.
#2 – Get a court order.
The BSA includes a provision allowing for a seller to apply to
the court for an order exempting the transaction from the BSA.
The trouble here is that such an order is only available where
the seller can prove that the sale is advantageous to the seller
and that it will not impair the seller's ability to pay
creditors in full. Furthermore, like option #1, timing constraints
surrounding getting the deal done may prohibit the parties from
going down this route.
#3 – Waive compliance with the BSA.
Often the buyer and the seller will agree to waive compliance
with the BSA in exchange for the seller agreeing to indemnify the
buyer in full for any consequences of non-compliance with the BSA.
The indemnity here is critical as the mere fact that the buyer and
the seller agree to waive compliance with the BSA does not absolve
the parties of their obligations under the BSA. The BSA exists to
protect trade creditors, who may still challenge a transaction
regardless of whether a buyer and a seller have waived its
application. Typically this waiver / indemnity is dealt with in the
purchase agreement governing the transaction.
Although this option is often determined to be the most
practical, it leaves the seller with the risk of having to
indemnify the buyer. Furthermore, if the seller is likely to have
little or no assets following completion of the sale, the indemnity
may be of little value to the buyer.
Ontario is the only remaining Canadian jurisdiction with bulk
sales legislation. All other Canadian jurisdictions have repealed
similar legislation on the basis that other rights and remedies
have been developed for trade creditors and compliance with bulk
sale legislation increases transactional costs for both sellers and
Although repeal of the BSA (if and when finalized – Bill
218 is still subject to further legislative approvals, including
the receipt of Royal Assent, before it becomes law) will mean that
buyers and sellers no longer have to deal with the challenges
presented by the BSA as part of Ontario M&A transactions that
are structured as asset deals, such repeal will place more emphasis
on the need for general creditors to protect themselves against the
risks the BSA is intended to address. For example, despite there
being general protections under the Bankruptcy and Insolvency Act and
assignment and preference legislation, general creditors who supply
goods should be mindful of taking the appropriate measures such as
properly perfecting a purchase-money security interest under the
Security Act (PPSA) in order to benefit from the statutory
priority rules. In addition, as part of the due diligence process,
buyers in M&A transactions will almost always conduct a PPSA
search against the seller of assets, so a PPSA registration will
serve as notice to the searching public of the general
creditor's interest in the seller's assets.
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.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).