July 2016 M&A Law Update, we asked the question: Could this
finally be farewell to the last remaining bulk sales legislation in
We are pleased to report that the answer is (finally) yes. On
March 22, 2017, Bill 27, entitled the Burden Reduction Act, 2017,
received Royal Assent in the Ontario Legislature and Schedule 3,
Bulk Sales Act Repeal, came into force resulting in the repeal of
the Bulk Sales Act (Ontario) (the "BSA") and making
consequential amendments to other statutes.
The Ontario M&A community should welcome the repeal of the
BSA with open arms. Originally enacted approximately 100 years ago,
the BSA was designed to protect unpaid creditors in the event the
debtor business sold all of its assets in bulk. More recently,
compliance with the BSA has been seen as a needless, burdensome and
costly exercise. In fact, it had become common practice for parties
to agree to waive compliance with the BSA and provide indemnities
in lieu of complying. Recognizing the lack of utility the BSA
provided, Ontario has finally caught up with the rest of the
jurisdictions in Canada by repealing its bulk sales
Life and Laws After the BSA Repeal
Now that the BSA has been repealed, creditors in Ontario still
have a variety of protections available to them at both the
provincial and the federal levels, including the following:
Creditor Protections at the Provincial Level
The Personal Property Security
Act (Ontario) (the "PPSA") enables
a supplier of goods to obtain security in the goods provided to
both commercial customers and consumers. In contrast, the BSA only
applied to the disposition of the tangible property of a business.
Under the PPSA, a supplier can take and perfect a super-priority
purchase-money security interest (PMSI) in the goods (equipment,
vehicles and inventory) it supplies.
The Fraudulent Conveyances
Act (Ontario) assists a creditor to recover real or personal
property that the debtor has conveyed or transferred to others with
the intent to defeat, delay or defraud the rights of creditors or
The Assignment and Preferences
Act (Ontario) gives one group of creditors the right to
recover property that a debtor transfers to one or more of its
other creditors in preference to the complainant creditors.
The Absconding Debtors Act
(Ontario) provides a mechanism for seizing real or personal
property in Ontario if a resident of Ontario leaves the province
with the intent to defraud his/her creditors.
A Mareva court injunction/order is
generally sought by a plaintiff prior to trial with the goal of
preventing a defendant from dissipating assets in response to the
threat of litigation and effectively precludes the defendant from
transferring or liquidating any assets other than in the ordinary
course of business.
Under the Business Corporations
Act (Ontario) (the "OBCA"),
suppliers have been able to obtain remedies under section 248
(oppression remedy) and section 246 (derivative action) if the
corporate debtor is incorporated or continued under the OBCA.
Creditor Protections at the Federal Level
Under section 96(1) of the
Bankruptcy and Insolvency Act (Canada) (the
"BIA"), in the case of a transfer at
undervalue, a court can either void a transfer at undervalue, or
order a party to the transfer and/or any other person who is privy
to the transfer, to pay to the trustee in bankruptcy the difference
between the fair market value of the property or services sold or
disposed of by the debtor and the actual consideration given or
received by the debtor.
Under section 81.1(1) of the BIA, a
supplier or distributor of goods may, in certain circumstances,
repossess goods that it has delivered to a customer who later
becomes bankrupt or placed into receivership.
Under the Canada Business
Corporations Act (the "CBCA"),
suppliers have obtained remedies under section 241 (oppression
remedy) and section 239 (derivative action) if the corporate debtor
is incorporated or continued under the CBCA.
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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