Tanker and bulk carrier due diligence

Once a letter of intent is signed, the buyer’s job changes from liking the business to testing it. For a tanker or bulk carrier, the tests are concrete: records a regulator holds, records the seller must produce, and registry searches that show who else has a claim on the equipment. This guide lists the documents, the searches and the findings that matter most, and what each finding means for the deal.

Safety and registration records

Start with what the regulator holds. In Ontario, a CVOR abstract summarizes a carrier’s safety performance, including collisions, convictions and inspections, and the province offers a free online carrier safety rating enquiry and carrier search by name. In Alberta, the province sets out which carriers need a Safety Fitness Certificate. Ask the seller for the same record independently, and compare. Look for facility audits, interventions and sanctions. Ontario’s CVOR page states that violations an inspector identifies in an audit may result in charges and that audit results and any related convictions may affect the operator’s CVOR record, so read the findings and not only the rating.

Dangerous-goods compliance

If the carrier hauls dangerous goods, the Transportation of Dangerous Goods Act is the baseline. Ask for evidence of compliance with the safety and security requirements that apply under the regulations. Ask whether the carrier needed an approved emergency response assistance plan for its loads, because the Act requires one for quantities or concentrations the regulations specify (for a carrier, where no importer or consignor is required to have one), and whether it has one. Ask about financial responsibility, which section 14 requires in accordance with the regulations. Then ask for any report the carrier made after a release.

Trailers and equipment

The Act applies to people who repair, test or equip a means of containment as well as to the carrier, so the repair and testing history of each trailer is a document to request, not a detail. Build a table by unit: identification, product cleared for, last test, next test, repairs and who did them. Walk the yard and compare the table to the metal. Check that each vehicle is linked to the registration. Ontario says documents are needed to link a vehicle to the CVOR certificate when it is not registered in the same name.

Liens and registry searches

Search for security interests against the seller and the company. In Ontario, the Personal Property Security Act sets the rules for attaching and perfecting a security interest and for priority between claimants; ask your lawyer which province’s statute applies. Search each name the business has used, and confirm that each lender’s claim is discharged at closing or assumed knowingly. The lender’s search results also help you plan your own financing.

Corporate and ownership questions

Confirm the legal entity that holds the registrations, the trailers and the contracts. In Ontario, the CVOR program reviews business ownership structure and tells operators to notify the Ministry immediately of changes in corporate officers, so the corporate record should match the registration. Ask for the corporate minute book, the share register and any shareholder agreement. If the business is organized as several companies, such as one for trailers and one for operations, list which company owns or leases each asset. A mismatch between the registered operator and the owner of the equipment is something to resolve before closing, not after.

Environmental and incident history

Ask for every incident report, release report and insurer notice for the period you are reviewing. The Act requires a person with charge, management or control of a means of containment to report certain releases, so ask what was reported, to whom and what followed. Ask also about the wash and cleaning facilities the carrier uses, whether it owns them or uses a third party, and what environmental approvals or reports exist for them. Your lawyer can advise whether an environmental assessment is worth ordering for any owned site.

Contracts and people

Read each customer contract for assignment, change-of-control and approved-carrier terms. Check insurance, since Ontario lists among an operator’s responsibilities making sure each vehicle is insured under a commercial vehicle auto liability policy with the appropriate minimum coverages, for example for dangerous goods loads. Collect driver training files and compare them to the loads actually run.

• A release, spill or enforcement finding that the seller did not disclose
• A safety record that puts the registration at risk
• Trailers with testing due that the buyer must fund after closing
• A lien that cannot be discharged at closing
• A key contract that does not survive a change of owner

Rank your findings by whether they can be fixed, priced or conditioned. A fixable item, such as a missing record, can go into a closing condition. A pricing item, such as a test due, can go into the price or a holdback. A finding that cannot be fixed or priced, such as a registration that cannot be held by the buyer, may end the deal. Keep a written list so that your lawyer can turn each item into a representation, a condition or an indemnity.

Each of these can be priced, conditioned or fixed before closing, or it can end the deal. The general trucking list is in trucking business due diligence.