Transport by road is a major and developed industry in Canada and the United States. The acquisition of a freight carrier – a commercial vehicle operator – may trigger varying levels regulatory registration and compliance requirements, depending on how the transaction is structured. The same concerns will often arise in acquisitions of entities that are not freight carriers, but operate a commercial vehicle as part of their business. The regulatory framework applicable to commercial vehicle operators can be surprisingly complex and should be taken into account when acquisitions are contemplated.
Generally, freight carriers have three basic types of regulatory requirements that apply to a fleet, all of which are set out in more detail below. Of note, it is likely that target entities other than carriers that operate commercial vehicles as part of their business will be most concerned with the second type of regulatory requirements – safety certification – especially if the commercial vehicles are operated exclusively within the province in which they are, or will be, registered.
The first type of registration requirement is registration of commercial vehicles themselves. Registration of commercial vehicles is a provincial responsibility. However, provincial legislation and regulations have been harmonized to a great extent in order to allow freight carriers to have their vehicles plated in a Canadian jurisdiction and travel without additional registration or permitting requirements into other Canadian (or United States) jurisdictions. All Canadian provinces and 48 of the United States are member jurisdictions of the International Registration Plan (the IRP). The IRP program provides for plating of vehicles and payment of registration fees in a single “base” jurisdiction, based on fleet distances operated in various jurisdictions. This type of registration is referred to as “prorate”. Generally, a carrier will have an “account” for the purposes of the IRP program, to which it can add new commercial freight vehicles when these are purchased. Operators other than carriers may consider “local” non-prorate registration. In share purchase transactions, the registration requirements are simplified as commercial vehicles are already owned and registered by the entity being acquired. Where vehicles are being transferred, the registration requirements can present more of a challenge, as registration may take time.
The second type of registration requirements pertain to safety certification of the operator. While administered provincially, the area of commercial vehicle safety has been largely streamlined across the provinces over the last decade. Provincial safety certification programs follow the requirements of the National Safety Code. Across the provinces, the name of the safety certificate itself can vary. In Ontario, the Commercial Vehicle Operator’s Registration is the equivalent, while in Quebec, a Registration Identification Number will correspond to a National Safety Code number. Generally, safety certificates issued by the “base” province of the operator (that is, where the vehicle is registered) will be recognized by other provinces where the vehicle is operated. Once an operator entity obtains a safety certificate, it will be assigned a profile that reflects their ongoing safety compliance ratings. Safety certifications need to be considered in the context of an acquisition of a carrier or other operator of commercial vehicles. Even in share purchase transactions where the target entity already holds a safety certificate, certain changes to a corporate entity holding such a certificate will trigger notice requirements in certain provinces.
The third type of regulatory requirements normally applies to inter-provincial and international freight carriers. These types of operators are required to obtain an International Fuel Tax Agreement (IFTA) number. This requirement is triggered by, among other things, the physical characteristics of the commercial vehicles operated (weight and number of axels). Notably, registration of a new IFTA number can take a significant amount of time. For example, obtaining an IFTA number in British Columbia may take up to 21 days.
Finally, acquirors need to consider special vehicle requirements and permitting that can vary across the provinces. For example, maximum prescribed vehicle weight, permitting for over-sized vehicles, or requirements associated with operating long combination vehicles in Alberta.