Collecting on a Debt > Helpful Tips

Advancing the rights of creditors generates a significant amount of litigation. This is especially true in the case of unsecured creditors. A creditor is unsecured if he or she is:

• Owed a debt by another party, and
• There is no contract between the debtor and the creditor that allows the creditor to take possession of the debtor’s assets to satisfu the debt.

It is often that a creditor successfully sues a debtor and obtains judgment in his or her favour. The problem then turns to enforcement: how can a creditor locate the debtor’s assets in order to satisfy the judgment?

There are a number of searches that a creditor can conduct to discover the extent of the debtor’s assets. One such search that is not widely used but that can be very important is a Bulk Sales Act (BSA) search. The Bulk Sales Act is an Ontario statute that, in circumstances prescribed by the Act, requires a corporation to file with the court an affidavit pertaining to the sale of stock in bulk (defined in the Act) when the corporation is disposing of stock in bulk outside of its usual course of business. The purpose of the BSA is to protect trade creditors who may otherwise be unaware that the debtor corporation is disposing of assets outside of its usual course of business. For BSA purposes, “stock” includes goods, wares, merchandise or chattels that are ordinarily the subject of trade and commerce. The most common instance in which the BSA is engaged is when a corporation sells itself to another corporation. Since the sale of the corporation is not something that it would do in its usual course of business, the sale is subject to the BSA, subject to exemptions set out in the Act.

An affidavit filed pursuant to the BSA is useful to a creditor because it will contain, among other things:

• Particulars of the sale, including the subject-matter of the sale
• The name and address of the trustee, if any
• A list of secured and unsecured trade creditors
• A statement of all trade creditors of which the buyer has been advised and which have been paid in full

Due to the exemptions contained in the Act, not every sale of stock in bulk will result in the production of a BSA affidavit. However, especially if debtor fraud is suspected, a BSA search is recommended.

Wade Morris
Toronto Litigator