Asset Purchases of Dental Practices
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice, you should seek professional assistance (e.g. make a post on Dynamic Legal Forms). We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you. I should know – I’m one of them and you can contact me directly (firstname.lastname@example.org).
Complying with the Bulk Sales Act
If you’re a dentist and you’re selling the assets of your dental practice, you should be mindful of the implications of the Ontario Bulk Sales Act. That Act provides relief to creditors of the vendor dentist: failure to comply with that Act allows those creditors to SET ASIDE the transaction or require the purchaser to make further payment to them!
Application of the Act
So let’s start off from the beginning, shall we?
First of all, the Act says that it applies to every sale in bulk (section 2). A “sale” is defined to include a transfer, conveyance, barter or exchange. And a “sale in bulk” means “a sale of stock in bulk out of the usual course of business or trade of the seller”. And finally, a “stock in bulk” means “stock or part thereof that is the subject of a sale in bulk and all other property, real or personal, that together with stock is the subject of a sale in bulk”. Stock in bulk can also include intangible assets – such as goodwill, packaging, artwork, inventory, trademarks and customer appreciation: see Re Excelsior Brand Ltd. and Italfina Inc.,  O.J. No. 4889 (Ont. Div. Ct.).
The whole idea is that, if the dentist vendor has creditors, then those creditors will have certain rights if the dentist wishes to sell their assets (i.e. those things which will ultimately generate revenue to pay back the creditors!).
Compliance: 3 ways
Now there are a few ways in which the purchaser can comply with the Act.
First, the purchaser can obtain a section 3 exemption order by the court by showing evidence that the vendor dentist has enough remaining assets to ensure that all of its credits will be paid in full.
Seller’s Affidavit + Buyer’s Affidavit
Second, the purchaser can obtain the vendor’s affidavit of creditors given under section 4 and 8(1) of the Act. This affidavit essential gives particulars of the amounts owing to it by both unsecured and secured creditors.
FYI: the difference between secured and unsecured creditors is that secured creditors have taken some type of security or collateral and registered it under the personal property security registry so that, in case the dentist defaults on the loan (or even goes bankrupt), the collateral can be seized and/or sold to pay it off. Unsecured creditors don’t have any security / collateral.
Now, under the Act, the purchaser may, after receiving the vendor’s affidavit of creditors, pay the seller if either the vendor delivers an affidavit showing that all secured and unsecured creditors have been paid OR the vendor has made adequate provision to immediately pay unsecured and secured creditors upon completion of the sale: section 8.
Now, within 5 days from the close of the asset purchase, the purchaser must file with the relevant courthouse (i.e. in the region where the asset purchase took place) an affidavit that includes details about the purchase and includes, as an exhibit, the seller’s aforementioned statement: section 11. These documents will need to be prepared by and sworn in front of a Commissioner for Taking Oaths, such as a lawyer. There’s also a $75 filing fee which must be paid to the government as part of filing this paperwork.
Payment to Trustee
A final way to comply with the Act is to pay the purchase price to a trustee: section 8(2). This is rarely relied upon.
It’s interesting to note that Ontario is the only province which still requires Bulk Sales Act compliance. The other provinces have taken the view that creditors don’t need this extra type of protection and that they should take security under their personal property security regime.
Two last things to keep in mind. First, if complying with the Act isn’t possible, then the deal may need to be restructured as a share purchase instead of an asset purchase. Second, if the purchaser isn’t afraid of the vendor’s creditors coming back to undo the transaction (e.g. based on the fact that the vendor still has lots of assets remaining after the sale to pay off its creditors), then it may simply not require compliance with the Act; in that case, however, the purchaser may still insist upon an indemnification (i.e. a promise from the vendor to pay the purchaser) if the sale is attacked by creditors. The purchaser may not be satisfied with a simple indemnification, but may also require some form of security from the vendor, in order to help guarantee that the vendor can pay the indemnity.
So there you have it: compliance with the Bulk Sales Act in a nutshell….