Georgea Wolfe, March 29, 2017
The Bulk Sales Act (Ontario) (the “BSA”) was enacted in Ontario in 1917 with the purpose of combatting then prevalent commercial fraud. Similar acts were enacted more or less contemporaneously in all other Canadian provinces and in most states in the United States, the vast majority of which have now been repealed.
A number of more modern statutes, such as the Personal Property Security Act (Ontario), now afford creditor protection in a manner which is much more efficient. Business lawyers have therefore been calling for the repeal of the BSA in Ontario for many years.
The BSA applied to any sale of stock in bulk out of the usual course of business or trade of the seller. Compliance by the seller involved delivering a statutory declaration to the buyer listing all of the seller’s secured and unsecured trade creditors, with particulars of the amounts owing to each such creditor. This statutory declaration was then required to be filed by the buyer at the court house in each jurisdiction in which the seller’s stock was located, within five days of the date of completion of the sale transaction.
A failure to comply with the BSA was problematic to the buyer as the entire transaction could later be reversed on the application of an aggrieved creditor, leaving the buyer liable to all of the seller’s creditors for an amount not exceeding the purchase price. In effect, the buyer could be called upon to pay the purchase price twice, once to the seller and then again to the seller’s creditors.
A court application could be made by the parties for an order dispensing with compliance with the BSA. As well, the BSA could be (and often was) honoured in the breach by buyer waiver of compliance and seller indemnity given to the buyer, although this involved a risk to the buyer. The risk of the waiver and indemnity methodology had to be assessed on a deal specific basis.
The BSA was repealed by the Burden Reduction Act (Ontario) on March 22, 2017. Ontario was the last Canadian province to repeal the BSA and its repeal was long over-due.