The fifteen-day clock after the collateral moved

The situation

A buyer acquired the assets of a precision machining shop in the Waterloo region for $4,600,000. Most of the equipment came free and clear, but the two newest CNC machining centres were financed under a 2022 term loan at 4.9%, with $812,000 outstanding. Refinancing them at the 8.1% the buyer's own lender was quoting would have cost roughly $26,000 a year, so the facility was left in place.

The equipment lender consented in writing to the transfer of the collateral to the buyer and to the buyer assuming the loan. An assumption agreement was signed at closing on 14 March. It contained a buyer covenant, drawn from the lender's precedent, to do all things necessary to maintain the lender's first-ranking perfected security in the equipment.

The problem

Everyone treated the lender's consent as the end of the registration question. It was the start of one. The lender's registration named the vendor as debtor. After 14 March the vendor no longer owned the machines; the buyer did. Nothing in the register said so, and nobody had a diarised date for fixing it. The financing change statement went on 23 April, forty days after the transfer.

A second confusion did quiet damage. The closing agenda described the registration as being “on title to the equipment”. Ontario has no title register for goods: the Personal Property Security Registration System records financing statements against debtors, with a VIN added for motor vehicles. Say "title" and you stop asking the only question that matters — whose name the registration is against, and whether that is still the owner.

The numbers

Assumed facility $812,000 at 4.9% against a market alternative of 8.1%, worth about $26,000 a year and the reason the structure existed. Transfer completed 14 March; the fifteen-day window closed on 29 March. The buyer's own acquisition lender registered its general security agreement on 14 March. The equipment lender's financing change statement went on 23 April.

The rule that decided it

Section 48 of the Ontario Personal Property Security Act, marginal note Transfer of collateral, is a clock that starts when the debtor parts with the collateral, and it has two settings depending on consent.

With consent, s.48(1) provides that where a security interest is perfected by registration and the debtor, with the prior consent of the secured party, transfers the debtor's interest in the collateral, “the security interest in the collateral transferred becomes unperfected fifteen days after the transfer is made unless the secured party registers a financing change statement within such fifteen days.” Consent shortens the clock; it does not stop it.

Without consent, s.48(2) gives thirty days from the later of the transfer — where the secured party had prior knowledge and the information required to register — and “the day the secured party learns the information required to register a financing change statement”, unless it registers or takes possession within that period.

The unit nobody checks. Read the operative words again: it is the secured party that must register, and it is the secured party's perfection that lapses. Section 48 imposes no duty on a buyer at all, and its consequence is, on its face, in the buyer's favour — an unperfected competing interest is a weaker one. That is why the clause is never on a buyer's closing checklist, and it is why the damage here arrived sideways, through the assumption agreement rather than through the statute.

Because the buyer had covenanted to maintain the lender's first-ranking perfected security, the lender's own omission put the buyer in breach of a covenant in a facility it had just assumed — four weeks into its ownership of the business, with a default clause and an acceleration right sitting on the other side of it. The statute allocated the task to the lender; the contract allocated the consequence to the buyer.

Section 48(5) makes the lapse curable: an interest that becomes unperfected under subsection (1), (2) or (3) “may be perfected again by registering a financing change statement at any time during the remainder of the unexpired registration period”. What it says nothing about is a competing interest that arose while the security was unperfected.

The same clock with no transfer at all. Section 48(3), Change of debtor name, runs a separate thirty-day period from the day the secured party learns of the change of name and the new name. A target filing articles of amendment mid-deal — common where a vendor retains the trading name — triggers it without any collateral moving. Subsections (6) to (8) are written around a natural person changing name, not a corporation.

The outcome

The gap surfaced in the first post-closing covenant review. The equipment lender registered on 23 April, curing perfection prospectively under s.48(5), and the buyer's acquisition lender — which had held the only perfected registration for twenty-five days — acknowledged the equipment lender's priority in the two machines. The covenant breach was waived, since only the lender could have performed the act the buyer had covenanted to procure.

What it would have cost otherwise

Left alone, the registration would have kept naming a debtor that no longer owned the machines. On a later refinancing a searcher running the buyer's name would have found the acquisition lender's general security agreement and nothing else — a picture that reads as $812,000 of unsecured equipment debt, corrected at the worst possible moment. The buyer would also have carried a live covenant default into its first covenant certificate.

The tell

The tell is the phrase "assumed, not paid out" on a funds-flow statement. Every payout has a discharge attached to it and someone chasing that discharge; an assumed facility has neither. The second tell is the consent letter: a lender that has consented has moved itself from thirty days to fifteen, so the more co-operative it has been, the shorter its window. Related: a machine shop whose largest press was leased.

Takeaways

• • PPSA s.48(1): where the debtor transfers collateral with the secured party's prior consent, the interest becomes unperfected fifteen days after the transfer unless the secured party registers. Without consent, s.48(2) gives thirty days.
• • The duty and the loss both sit with the secured party. A buyer has no statutory obligation — but an assumption agreement making the buyer covenant to maintain the lender's perfected security transfers the consequence of the lender's omission to the buyer.
• • Consent shortens the clock. The more helpful the lender has been, the less time it has.
• • s.48(5) allows re-perfection during the unexpired registration period, but says nothing about interests that arose during the gap. Curing perfection is not the same as undoing the exposure.
• • s.48(3) runs an independent thirty-day clock on a change of debtor name, with no transfer involved — which catches a target that amends its articles mid-deal.
• • A PPSA registration is against a debtor, not on title to goods. Ontario has no title register for equipment, and the "on title" habit stops people asking whose name the registration is in.

Sources

• • Personal Property Security Act, R.S.O. 1990, c. P.10, s.48 — marginal note Transfer of collateral: s.48(1) fifteen days where the transfer is with the secured party's prior consent; s.48(2) thirty days without consent; s.48(3) Change of debtor name; s.48(4) transferee in possession; s.48(5) re-perfection during the unexpired registration period; s.48(6)–(8) the Registrar General route.
• • Treadstone Law — equipment financing on a business acquisition (Ontario) — how equipment facilities are handled in a purchase. It addresses the financing decision rather than the registration clock that follows a transfer of collateral.
• • Treadstone Law — transferring vehicle registrations and equipment leases on a business sale (Ontario) — the transfer mechanics on the asset side. Adjacent: it does not deal with the secured party's own registration obligation under s.48.
• • No statute allocates the s.48 registration task to the buyer. The allocation of consequence in this file came from the assumption agreement, which is a matter of contract drafting and not of the PPSA — there is no provision to cite for it, which is the point.