Bulk Sales in Ontario: Does the Act Still Apply to Your Business Purchase?

If you are buying or selling a business in Ontario — particularly through an asset purchase — you may have heard the term "bulk sales" come up and wondered whether it affects your deal. The short answer: Ontario's Bulk Sales Act was repealed (as of writing, this occurred some years ago — verify the current state of the law). But the underlying concern that legislation addressed — protecting trade creditors when business assets are sold outside the ordinary course — has not gone away entirely. It is worth understanding what the Act did, why it was repealed, and what protections remain for buyers and creditors in Ontario asset transactions today.

What Was the Bulk Sales Act?

The old Bulk Sales Act was designed to address a specific problem: a merchant who owed debts to suppliers could secretly sell all their inventory and business assets, pocket the proceeds, and leave creditors with nothing to collect. The Act required sellers engaged in a "bulk sale" (a sale of a substantial part of their stock-in-trade or inventory outside the ordinary course of business) to either comply with a notice-and-trust-account regime, or to obtain an exemption from the court.

The process was notoriously cumbersome:

• The seller had to obtain a sworn statement of creditors.
• Creditors had to be paid from closing proceeds, or a trust account had to be maintained.
• Buyers who failed to comply could be required to hold the assets in trust for creditors.

Lawyers and clients found compliance burdensome, and the Act was frequently waived by court order on consent. Its repeal removed a significant piece of transaction friction for straightforward asset deals.

What Changed When the Act Was Repealed?

The repeal simplified asset purchases considerably. Buyers are no longer required to go through the bulk sale compliance regime or obtain a court order waiving it. Most Ontario asset purchase transactions now close without any reference to bulk sales legislation.

However, removing the Bulk Sales Act did not remove all creditor-protection risks for buyers. The following issues remain relevant:

1. Fraudulent preferences and transfers under the Assignments and Preferences Act and Fraudulent Conveyances Act

Ontario's Fraudulent Conveyances Act allows creditors (and bankruptcy trustees) to set aside transfers of property made with intent to defeat creditors. If a seller is insolvent or near-insolvent and sells assets at undervalue — or transfers them for no value — creditors can attack the transaction after the fact. A buyer who acquires assets in circumstances where fraud is evident (or who paid less than fair value) may find the transaction challenged.

2. The CCAA and Bankruptcy and Insolvency Act (federal)

If the seller becomes insolvent and enters bankruptcy or restructuring proceedings shortly after closing, the bankruptcy trustee has the power to set aside certain transactions — including asset sales — that occurred in the period leading up to the insolvency. Federal insolvency law operates alongside Ontario's property law framework.

3. CRA tax claims and deemed trusts

The Canada Revenue Agency holds a "super-priority" over certain assets for unremitted GST/HST and payroll remittances. This deemed trust means the CRA can pursue these amounts even against a buyer who acquires the assets. This is why buyers always request confirmation that HST and payroll accounts are current as part of due diligence, and why purchase agreements include representations that the seller's CRA accounts are in good standing.

4. PPSA searches

The Personal Property Security Act (PPSA) registry allows buyers (through a search conducted by their lawyer before closing) to identify security interests registered against the seller's assets. If a lender has registered a security interest over the seller's inventory or equipment, the buyer must ensure those interests are discharged before or on closing, or the assets come to the buyer encumbered.

Practical Steps in an Ontario Asset Purchase Today

Even without the Bulk Sales Act, buyers protecting themselves in an Ontario asset purchase should:

1. PPSA search all assets. Confirm no registered security interests or liens exist on the assets being purchased. If they do, require discharges as a condition of closing.
2. CRA clearance letters. In appropriate transactions, request or require CRA certificates confirming no outstanding tax debts. These are more commonly used in larger deals or where the seller's tax compliance is uncertain.
3. Representations and warranties on liabilities. The purchase agreement should represent that the seller has no undisclosed creditors, that all trade payables are current, and that no actions have been taken to hinder creditors.
4. Adjust the purchase price for liabilities you are assuming. If you are assuming specific liabilities (accounts payable, lease obligations), reflect that in the price and document it clearly.
5. Holdback. A purchase price holdback for a defined period gives the buyer recourse if creditor claims emerge post-closing.

Frequently asked questions