Last year, we reported that Ontarians may finally be able to bid farewell to the archaic Bulk Sales Act (Ontario) (the BSA). The BSA was initially enacted to protect creditors of a seller against the sale of assets in bulk where the seller did not satisfy its outstanding debts to the creditor.
After much anticipation, on March 22, 2017 the Burden Reduction Act, 2017 was enacted, which, among other things, repeals the BSA, an ancient piece of legislation that all other jurisdictions in Canada repealed years ago. For reasons that are readily apparent as well as those set out below, M&A lawyers in Ontario welcome this change.
Given modern Ontario statutes (some of which are discussed below), the BSA served no practical purpose. In the industry, the BSA was seen as costly and burdensome. Protections afforded under the Personal Property Security Act (Ontario), the Fraudulent Conveyances Act (Ontario) and Business Corporations Act (Ontario), to name a few, adequately protect creditors. To this point, it quickly became an industry practice for both parties to an M&A transaction to waive compliance of the BSA and indemnify the seller for any costs resulting from non-compliance. This repeal comes at an opportune time given recent 2016 ONSC precedent disallowing waiving compliance of the BSA.
In particular, repealing the BSA greatly reduces the challenges arising in M&A transactions in Ontario. The BSA required purchasers to list all of the vendor's creditors, including their names, addresses and credit amount. Additionally, the BSA had its own definition of each type of creditor, which in turn, required lawyers to analyze each creditor in order to determine their category. While extremely burdensome to lawyers, these steps were crucial since failure to comply with the BSA could result in the entire transaction being reversed upon complaint by one disgruntled creditor. Because of this repeal, lawyers no longer have to deal with the many administrative burdens resulting from the BSA.
The author would like to thank Travis Bertrand, Summer Student, for his assistance in preparing this legal update.
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