Canada: Farewell Bulk Sales Act

Last Updated: April 13 2017
Article by Charlie Malone

In our July 2016 M&A Law Update, we asked the question: Could this finally be farewell to the last remaining bulk sales legislation in Canada?

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 Originally enacted approximately 100 years ago, the BSA was designed to protect unpaid creditors in the event the debtor business sold all of its assets in bulk.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 legislation.

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Now that the BSA has been repealed, creditors in Ontario still have a variety of protections available to them at both the provincial and the federal levels, including the following: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 others.
  • 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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