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Ontario’s Bulk Sales Act has been repealed

On March 22, 2017, Ontario’s Bulk Sales Act (BSA) was repealed, bringing to an end bulk sales legislation in Canada.1 The BSA was enacted in 1917, and was intended to protect unpaid trade creditors (i.e. the people a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 BSA was an important consideration for both the buyer and the seller in an Ontario M&A transaction that was structured as an asset deal as the consequences of not complying with the BSA could be significant, including that a non-compliant transaction could be set aside by a court upon the application of a trade creditor of the seller. Prior to its repeal, the parties to an asset transaction would deal with the BSA by following the procedure for compliance with the BSA, getting a court order or, most commonly, waiving compliance with the BSA.

Now that the BSA has been repealed, buyers and sellers no longer have to deal with the challenges presented by the BSA as part of Ontario M&A transactions that are structured as asset deals. However, more emphasis will now be placed on the need for general creditors to protect themselves against the risks the BSA was 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 Personal Property 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.

1     Prior to the repeal of the BSA, Ontario was the only remaining Canadian jurisdiction with bulk sales legislation. All other Canadian jurisdictions had previously repealed similar legislation on the basis that other rights and remedies have been developed for trade creditors and compliance with bulk sales legislation increases transactional costs for both sellers and buyers.

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