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ANSWERS PROBABLY NOT. Although the new arrangement will not interfere with Big Bank's priority under the Personal Property Security Act in Ontario, loan agreements typically contain negative covenants regarding additional debt or security. You should review the existing loan agreement and engage Big Bank as early as possible to get the necessary consents, and advise Pit-bull Marketing that Big Bank's consent may be required for closing. A) OR B) When it comes to deceptive marketing practices, the Competition Bureau focuses its enforcement efforts on the businesses that are responsible for content or have a degree of control over that content. This is set out in ss. 52(2) and 74.03(1) of the Competition Act, and the bureau's published enforcement guidelines. As Raining Cats and Dogs had the power to decide what content went in their campaign, there is potential for liability under the Competition Act. Under s. 74.1, for a first offence, a corporation may be liable in an amount up to $10 million for deceptive marketing practices. You should consider whether a holdback of the purchase price and an indemnity from Raining Cats and Dogs will give your client sufficient comfort regarding these contingent liabilities, or whether they would prefer to proceed with an asset deal and exclude such liabilities from the purchase. B) No. Under Section 5(1) of Ontario's Arthur Wishart Act, Petwear Co. is required to deliver to Pit-bull Marketing a disclosure document that complies with the requirements of the act. As a prospective franchisee, Pit-bull Marketing is entitled to receive the disclosure document not less than 14 days before signing the franchise agreement or any other agreement relat- ing to the franchise, and before paying any consideration to the franchisor. Under s. 6(2) of the act, where a franchisor has not delivered a disclosure document to the franchisee, the franchisee is entitled to rescind the franchise agreement within two years of entering into the franchise agreement. You should remind Petwear Co. of its obligations under this statute and require full compliance. IT MAY NOT BE NECESSARY. The federal Income Tax Act was amended in 2010 so that shares of a Canadian private corporation are no longer defined as "taxable Canadian property," unless they are shares in a corporation of which more than 50 per cent of the value is derived directly or indirectly from Canadian real property (or other impugned property listed in the act) owned within the 60 months preceding closing. Provided Raining Cats and Dogs has not exceeded this 50 per cent threshold, Section 116 clear- ance certificates for non-Canadians who are selling their Raining Cats and Dogs shares are not required for the closing of the transaction. B) No way. Under the Ontario Securities Transfer Act, 2006, a purchaser of shares will only meet the definition of a "protected purchaser" if it (i) gave value, (ii) did not have notice of any adverse claim to the shares, and (iii) obtained control of the shares. For a certified security, a party obtains "control" under s. 23(2) of the act by taking possession of the certificate, together with (i) an appropriate endorsement, or (ii) arranging for the issuer to register the security in the name of the secured party. In this case, your client would not qualify as a protected purchaser both because it would not obtain possession of the existing certificate and because it has notice of Willy's adverse claim. Therefore, if Pit-bull Marketing proceeds as suggested it would buy the shares subject to Willy's lien if it proved valid. In addition, faking an affidavit of loss may constitute perjury, and acquiescing to it would breach rules of professional responsibility. You don't want Raining Cats and Dogs to inherit this problem and should require that the sellers deal with it prior to or on closing, perhaps by directing some of the purchase price to Willy to settle the dispute and get the certificate released. YOUR RANKING? One or less correct: might be time to brush up Two correct: not bad, but some further work needed Three correct: very well done, but not perfect Four correct: impressive Five correct: excellent FEEDS LEGAL 16 • FEBRUARY 2012 LegalFeeds_IH_Dec_11.indd 1 Canadian Legal News Powered by A daily blog of & INHOUSE 12-01-11 8:16 AM 1 2 3 4 5 canadianlaw Canadian Law yermag.com/legalfeeds yer Law Times