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Dolgin Professional Corporation

Repeal of Ontario’s Bulk Sales Act – Parting is Such Sweet Sorrow

They finally did it.

The Bulk Sales Act (Ontario) (enacted almost 100 years ago) has now been officially repealed.

If memory serves me correctly, Ontario was the last jurisdiction in North America to retain bulk sales legislation.

I honestly did not anticipate this happening during my legal career given the BSA’s repeal never seemed to be a legislative priority in Ontario despite many efforts over the years to make it so.

Transactions lawyers like myself viewed the BSA as a nuisance more than anything as it effectively gave unpaid unsecured creditors of an asset seller powerful legal rights to void the sale as against the asset buyer … rights they did not negotiate and arguable should not have.

Neutralizing these unsecured creditor BSA rights required the lawyers in the deal to formally “comply” with the legislation by swearing and filing affidavits with various courts and, in some cases, ensuring the seller’s closing proceeds were applied via direct payments to the seller’s unsecured creditors at or following closing.

The timelines to file these affidavits were really tight – i.e., five (5) calendar days from closing – which made closing a deal before a long weekend a real pain as you only had one (1) calendar day to effect your filings.

All of this added needlessly to the legal costs of closing your deal.

So the good news is that closing asset sales in Ontario have been streamlined to the extent BSA compliance is a thing of the past.

However, there were a few cases where I viewed and used the BSA as friend (not foe) to gain leverage and assist my clients.

So the BSA’s repeal has removed a useful legal tool in my opinion.

For example, I recall a client who provided consulting services to its customer and had large unpaid (unsecured) invoices which were many months outstanding. My client held off bringing legal proceedings given the many promises that the “proverbial cheque was in the mail”.  Upon learning the customer was in play to sell its assets, we could use the BSA to create a “seat at the table” and convince the buyer and its counsel to get us paid from the closing proceeds.  Problem solved.  Happy client.

I recall another case where my clients were minority shareholders of the asset seller and we used the BSA (in conjunction with the seller’s abuse of minority statutory dissent rights) to get my clients paid at closing … taking the position their statutory dissent claims were also BSA claims.  Problem solved. Happy clients.

Sadly, those days are now gone so unsecured creditors and minority dissenting shareholders have one (1) less “legal collection tool” at their disposal.

On balance, I still say “good riddance to you BSA” … but acknowledge that the outcome has both winners and losers.

For unsecured creditors, the key takeaway from the BSA’s repeal is to review your credit terms and consider negotiating some level of security (even on a limited basis) with your customers to enhance payment when your customer sells their business.

 

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