Two lenders on the same deal do not rank themselves. Provincial personal-property security law sets a default order, and every lender with real leverage negotiates around it — which is why the subordination agreement matters more than the loan agreement it sits beside.
Key takeaways
Personal property security legislation in every common-law province sets out a residual priority scheme for competing security interests over the same collateral. British Columbia's version, for instance, is organized under Part 3 of the Personal Property Security Act, headed “Perfection and Priorities,” with a section titled “Residual priority rules” (s. 35) setting the default ordering among secured parties, and registration itself governed under Part 4. Whole-Act pages like this one are long enough that quoting the operative text of a specific numbered section without reading it directly is a real risk — the safer statement is what is confirmed from the table of contents: the Act organizes priority by Part, names a residual rule, and treats registration as a distinct step from the underlying security agreement itself. Confirm the exact operative wording of the section that governs your deal directly, in the province where the collateral sits, before relying on it.
What matters commercially is simpler than the statute: a default rule exists, and it is not the rule any lender with real negotiating leverage is willing to accept as final. A bank extending senior debt against a business's equipment and receivables is not going to rely on a residual statutory rule to make sure it gets paid first — it is going to negotiate an explicit agreement that says so, in terms specific to this deal.
The same PPSA framework that sets a default order also lets parties vary it directly. British Columbia's Act names this in its own table of contents as section 40, “Subordination or postponement of right to security interests” — the section that lets a secured party agree to rank behind another creditor with respect to the same collateral, in whole or in part. That agreement, not the residual statutory order, is what a buyer's counsel actually negotiates when two lenders are involved.
Deavo’s own market note on vendor take-backs states the commercial norm plainly: negotiated VTB terms typically include “standstill/subordination terms — senior lenders typically require the vendor take-back to rank behind them,” alongside “registration of security under the applicable province's personal property security legislation.” The seller providing take-back financing is, in effect, accepting a subordinate ranking as the price of being allowed to lend at all alongside an institutional lender — it is negotiated into the deal, not imposed by statute.
A subordination agreement is rarely just a ranking statement. It typically layers on a standstill: the subordinated lender agrees not to demand payment, accelerate the debt, or enforce its own security while the senior debt remains outstanding and in good standing, and agrees that any payment it does receive in breach of that standstill is held in trust and turned over to the senior lender. A comparison deavo publishes of bank financing against vendor financing notes that even a fast-moving vendor take-back “still needs to be properly documented, including security registration and, where a bank is financing part of the same deal, subordination terms” — the speed of agreeing to VTB terms between buyer and seller does not remove the need for this documentation once a bank is also in the structure.
The specific day-counts, cure periods and turnover mechanics inside a standstill are matters of negotiation between the two lenders' own counsel, not a figure set by statute anywhere in the sourced material here — a buyer should expect these terms to be drafted deal by deal, not assume a market-standard number exists to fall back on.
Once a deal reaches roughly $5,000,000 and mezzanine capital enters the structure, subordination stops being a point of friction between two lenders competing for the same rank and becomes the intended design. Deavo’s own capital-stack breakdown describes mid-market leverage as roughly 3.0× EBITDA in senior debt at around 10%, plus about 1.0× EBITDA in mezzanine, priced at 8–12% and often carrying payment-in-kind (PIK) interest, for total leverage around 4× (5–6× on more aggressive structures). See the mezzanine-debt glossary entry for how PIK interest changes what the borrower actually pays in cash each year versus what accrues to the balance. A mezzanine lender prices its higher risk into the rate rather than fighting for a senior rank it was never going to get on a leveraged mid-market structure — the subordination is the trade, not a concession.
Everything above describes the personal-property-security framework used across common-law Canada. Quebec runs a civil-law security regime that is not a provincial variant of the same statute — it is a different legal system for the same commercial problem, with its own registry and its own priority rules. Nothing in the sourced material for this article covers that regime directly, and it should not be assumed to work the same way. Any acquisition where the target, a guarantor, or the collateral sits in Quebec needs Quebec-qualified counsel brought in on the intercreditor structure specifically, not a common-law PPSA analysis applied by analogy.
A buyer acquires a specialty distribution business for $6,200,000. The senior lender, a commercial bank, provides $3,700,000 secured by a general security agreement over all of the target's present and after-acquired property, registered under the applicable province's personal property security legislation. A mezzanine fund provides a further $1,240,000, priced at 10% cash plus 2% PIK, also taking security over the same asset pool but expressly subordinated to the bank's claim. The seller takes back $620,000 on a note secured by a third-ranking interest, and the buyer contributes the remaining $640,000 in equity.
Three separate security interests now sit over the same collateral pool, and the PPSA's residual statutory ordering is displaced entirely by negotiated agreement: the bank negotiates a subordination and standstill from the mezzanine fund and a second, similar subordination and standstill from the seller, so that on a default, the bank is paid in full before either subordinated creditor sees a dollar from enforcement of the shared collateral. The mezzanine fund, in turn, typically negotiates its own standstill terms against the seller's note, since it too wants priority over the most junior claim. The result is three lenders, three security registrations against the same assets, and one negotiated ranking that has nothing to do with the order in which anyone happened to register — it is entirely the product of the subordination agreements each junior creditor signed to be allowed into the deal at all.
Not once a subordination agreement is in place. Provincial personal-property security statutes set a default order tied to registration, but that default can be, and routinely is, overridden by an explicit subordination agreement between the creditors themselves.
Not automatically, but in practice usually yes wherever a bank is also financing the deal. Deavo’s own market note states senior lenders typically require it as a negotiated term, which means it is a point the seller's counsel actually bargains over, not a fixed rule.
Yes, structurally rather than incrementally. Quebec runs a civil-law security regime distinct from the personal-property-security statutes used elsewhere in Canada, and it needs its own qualified counsel rather than a common-law analysis applied by analogy.
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