A promissory note is a promise. Whether that promise survives a buyer who stops paying depends entirely on what the seller registered against the business before closing — and on how much of that security a senior lender already sits ahead of.
Key takeaways
A general security agreement registered under the Personal Property Security Act, a share pledge, a personal guarantee, and a mortgage on real property each give a seller different, and sometimes overlapping, avenues to pursue if a buyer defaults. None of them is automatic. Each has to be negotiated, drafted and, for the first two, registered before it does anything at all.
A GSA is the workhorse: a floating charge over the buyer's (or the target's) business assets — equipment, inventory, receivables, and whatever else falls inside the collateral description. A share pledge only makes sense where the seller took back equity or where the deal closed as a share purchase and the seller wants a claim on the shares themselves rather than the underlying assets. A personal guarantee reaches past the numbered company to the individual behind it. A mortgage is the tool when real property changed hands as part of the deal. This piece is about the security behind a vendor take-back specifically; how a VTB compares to an earn-out or a holdback as a deferred-payment tool in the first place is covered in earn-out versus holdback versus vendor note.
Registration is a public-notice system, not a payment guarantee. In British Columbia's Personal Property Security Act, Part 2 governs when a security interest attaches and becomes enforceable between the parties (s. 12, “Attachment of security interests”); Part 3 governs when it is perfected against everyone else, including a later creditor or a trustee in bankruptcy (s. 19, “When security interests are perfected”; s. 25, “Perfection by registration”); and Part 4 is the registry mechanics itself (s. 42, “Personal property registry”; s. 43, “Registration of financing statements”).
Every common-law province runs a broadly similar three-layer structure — attach, perfect, register — though the section numbers differ province to province and Quebec runs an entirely different regime under the Civil Code. This piece cites BC's numbering because it is the version directly readable here; confirm your own province's section numbers with counsel before drafting against them.
The practical effect of perfecting a GSA is priority, not certainty of payment. A perfected security interest generally beats an unperfected one and beats a later general creditor, but it can still rank behind an earlier-registered interest, a purchase-money security interest on the same collateral, or — the case that matters most in a vendor take-back — whatever the buyer's own bank already registered before the seller's note was signed.
Where the seller instead pledges the buyer's shares as collateral, the mechanism is different again. CBCA s. 146(3) provides that a purchaser or transferee of shares subject to a unanimous shareholder agreement (USA) “is deemed to be a party” to that agreement — so a seller who negotiates operating covenants into a USA at closing, and takes a pledge over the shares as security for the note, is not relying on the pledge alone. The buyer inherits the USA's restrictions along with the shares, and s. 146(4) even gives an uninformed purchaser 30 days to rescind if they were not told the USA existed.
This is a federal (CBCA) mechanism; a corporation formed provincially runs on its own corporate statute, which may or may not mirror s. 146 exactly. Confirm which Act the target is incorporated under before assuming the deemed-party rule applies.
None of this changes the fact that senior lenders typically require the vendor take-back to rank behind them through a standstill or subordination agreement, and that a buyer's bank will usually insist on this as a closing condition wherever it is financing part of the same purchase. A registered, perfected GSA is real security — it is just security that, in practice, sits second in line behind whoever financed the rest of the deal. The rate a seller can justify charging on the underlying note is a separate negotiation, covered in setting the interest rate and term on a seller note.
That is also why a seller's remedies on default depend so heavily on which of these instruments were actually put in place, and on what the standstill agreement lets the seller do before the senior lender has been paid out. A GSA that cannot be enforced until the bank says so is still worth having — it is just not the same thing as being first in line. What actually happens once a buyer stops paying is worked through in what happens if a buyer defaults on a seller note.
An Ontario seller sells a $1.2M mechanical contracting business as an asset deal. The buyer pays $900,000 in cash at closing (bank plus CSBFP financing) and signs a $300,000 vendor take-back note for the balance, amortized over four years.
The seller's counsel registers a GSA over the assets of the new operating company, takes a personal guarantee from the buyer's principal, and negotiates a standstill agreement with the buyer's bank that lets the seller enforce the GSA only after the bank has been repaid in full or has consented. That standstill is the price of the bank agreeing to finance the deal at all — a familiar trade in Canadian small-business acquisitions.
Eighteen months in, the buyer stops paying. The seller's GSA is registered and perfected, but the standstill blocks enforcement until the bank is satisfied its own position is not at risk. The personal guarantee, by contrast, is not subject to the standstill — it runs directly against the principal, not against the collateral the bank has priority over — so it becomes the seller's fastest practical lever while the GSA position is worked out.
No. Registration establishes priority against other creditors and gives public notice of the claim; it does not guarantee funds exist to satisfy it, and it is routinely subordinated to a buyer's senior lender through a standstill agreement negotiated at closing.
It can still be taken, but it will typically rank behind the bank's earlier-registered interest on the same shares. Priority in Canadian personal property security law generally follows the order of registration, not the order the security was granted in conversation.
Only as much as that holding company's own assets. A personal guarantee is meant to reach an individual's assets directly; a guarantee from another shell corporation with no assets of its own adds a second layer of paperwork without adding real recourse.
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