Less than a year from the 100th anniversary of its enactment, Ontario's Bulk Sales Act (the "BSA") seems set for repeal. On June 8, 2016 Bill 218, the Burden Reduction Act, 2016 received first reading. Section 1 of Schedule 3 simply says "The Bulk Sales Act is repealed." Ontario has been a laggard in taking this step. All of the other common law provinces have previously repealed their BSA legislation.
It was originally intended to protect creditors from business owners selling their assets and disposing of the proceeds without paying their creditors. In more recent times it has come to be viewed as out dated legislation which interferes with M&A transactions, both big and small, structured as asset sales by creating delays and increasing the costs of such transactions. It hasn't been substantially amended since 1959.
Repeal of the BSA was one of the key recommendations contained in the June 15, 2015 report to Ontario's Minister of Government and Consumer Services by a group of legal practitioners and academics called Business Law Agenda: Priority Findings & Recommendations Report.
The panel noted in their Report that there are now other means for protection of creditors such as credit reporting agencies, the Personal Property Security Act, the oppression remedy under the Ontario Business Corporations Act and preferences, transfers at undervalue and 30 day goods recovery under the Bankruptcy and Insolvency Act.
Compliance with the BSA in the manner originally intended can be impossible where part of the purchase price is paid by the assumption of debt or the issuance of shares or for other reasons there is insufficient cash to pay all creditors on closing.
Often vendor and purchaser would waive compliance as between themselves. That is not recognized under the BSA, which has a number of provisions that can be a trap to the unwary. A transaction completed without compliance with the BSA is voidable at the instance of an unpaid creditor. A purchaser who completes an asset purchase without complying can end up paying twice, first to the vendor on closing of the transaction and a second time to the unpaid creditors since the BSA makes the purchaser liable to the creditors in the event of non-compliance.
The BSA is also uneven in its application. It doesn't apply to a share purchase so sometimes a transaction that the parties would prefer to complete as an asset sale would have to be re-structured as a share deal in order to avoid application of the BSA. The BSA also does not apply to a sale in bulk that only involves intangibles. This has become a significant omission as the value of intangibles such as intellectual property, accounts receivable and goodwill have become a much more significant source of assets for many companies.
Hopefully the legislature will follow through and enact the repeal so that on royal asset we can say RIP BSA.
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