In a decision sure to pique the interest of the securitization bar, Ontario's Superior Court of Justice has found the Bulk Sales Act inapplicable to a proposed lease and equipment securitization transaction. The case, Cle Leasing Enterprises Ltd. (Re), involved an asset originator that had applied for a BSA exemption order in the context of a lease securitization transaction that would extend to present and future sales under a program.
In a decision dated June 9, the Court ultimately found that the proposed transaction did not fall within the BSA's definition of "sale in bulk", which must be outside the usual course of business or trade of the seller. In the present case, however, the Court distinguished the proposed transaction from those captured by the BSA, stating that
[t]he Proposed Transaction employs the legal device of a sale for the purpose of raising financing in the ordinary course of the operations of the applicants' business. The applicants no doubt considered a number of financing options before selecting the form of the Proposed Transaction. They could have approached a financial institution to borrow money, charging the Leases and Leased Equipment as security for that loan. The definition of "sale" in the BSA makes it clear that the Act would not apply to that form of financing. Why, then, should the use of securitization as the means-of-choice for financing attract scrutiny under the BSA? It is merely another financing option.
As such, the court concluded that
the sale is not made out of the ordinary course on the basis that the purpose and design of the Proposed Transaction is to secure ordinary course financing for the applicants.
In my view the BSA was not intended to regulate, nor by its terms does it result in the regulation of, an ordinary course financing technique such as the type of asset securitization involved in the Proposed Transaction.