Assignments and Preferences Act (Ontario)

A buyer of assets from an Ontario business that is insolvent or close to it can meet this Act if a creditor later challenges a transfer, or a payment out of the price. It is separate from the federal Bankruptcy and Insolvency Act, which has its own rule; see preferential payment (BIA preference).

What section 4 says

Section 4(1) makes a gift, conveyance, assignment, transfer, delivery over or payment of property void as against the creditor or creditors injured, delayed or prejudiced, if the person made it when insolvent, unable to pay debts in full or knowing of being on the eve of insolvency, with intent to defeat, hinder, delay or prejudice creditors. Section 4(2) covers such a transfer or payment, made in the same circumstances, to or for a creditor with the intent to give that creditor an unjust preference over other creditors. Sections 4(3) and 4(4) presume that intent, absent contrary evidence, where the transaction has the effect of preferring a creditor and an action to set it aside is brought, or an assignment for the benefit of creditors is made, within sixty days. All of section 4 is subject to section 5.

What section 5 limits, and what to ask

Among the cases section 5(1) lists, section 4 does not apply to a sale or payment made in good faith in the ordinary course of trade or calling to an innocent purchaser or person. Under section 5(2), if, after a valid sale, a purchaser pays or transfers the price, or part of it, to a creditor of the vendor in circumstances that would make the debtor’s own payment void, that payment is void as respects that creditor, even though valid as respects the purchaser. Ask a lawyer:

• Whether the seller was insolvent, or near insolvency, at closing
• Whether any part of the price is directed to a creditor
• Whether a section 5 exception fits; see buying before a business becomes insolvent