A buyer of Ontario business assets takes them subject to every security interest already perfected against them. Section 39 of the Personal Property Security Act says the debtor’s rights in collateral may be transferred, but that “no transfer prejudices the rights of the secured party”. Selling the forklift does not lift the charge on the forklift. A registered discharge does.
Key takeaways
SECTION 01 OF 10
One sentence settles it. Section 39 of the Personal Property Security Act, R.S.O. 1990, c. P.10, lets a debtor’s rights in collateral be transferred “despite a provision in the security agreement prohibiting transfer”, but adds that “no transfer prejudices the rights of the secured party”.
So the seller can sell charged equipment even where its loan forbids it, and the buyer takes title with the charge still on it. The purchase agreement cannot alter that; the lender never signed it.
Subsection 25(1) adds that where collateral gives rise to proceeds — which a sale does — the security interest “continues as to the collateral, unless the secured party expressly or impliedly authorized the dealing” free of it, and “extends to the proceeds”. The lender may follow the asset to the buyer and the price to the seller.
SECTION 02 OF 10
Subsection 9(1) makes a security agreement “effective according to its terms between the parties to it and against third parties”, and subsection 11(1) adds that it “is not enforceable against a third party unless it has attached”.
Perfection is the second stage, and for a business lender it means registration: section 23 is one line, “Registration perfects a security interest in any type of collateral.”
Treadstone Law’s note on attachment versus perfection treats an unperfected interest as weak rather than void. Perfection is what a buyer searches for.
SECTION 03 OF 10
A security interest is “an interest in personal property that secures payment or performance of an obligation”, and section 2 reaches “every transaction without regard to its form” that “in substance creates a security interest”. Substance beats labelling.
That catches arrangements a buyer may not think of as debt. Clause 2(c) brings in “a lease of goods under a lease for a term of more than one year even though the lease may not secure payment or performance of an obligation”. The photocopier lease is registrable.
Section 1 defines “inventory” to include “raw materials, work in process or materials used or consumed in a business or profession”, and “equipment” as the residual, “goods that are not inventory or consumer goods”. Subsection 12(1) lets one agreement cover after-acquired property, so stock bought last week answers to a charge signed years ago.
SECTION 04 OF 10
Clause 20(1)(b) makes an unperfected interest “not effective against a person who represents the creditors of the debtor, including an assignee for the benefit of creditors and a trustee in bankruptcy” — the outcome Treadstone Law describes where a lender forgot to register.
The buyer’s limb is clause 20(1)(c): an unperfected interest in goods is not effective against a transferee “who gives value and receives delivery thereof without knowledge of the security interest”. Three conditions, all of which must hold.
Ignorance is the one that fails. Section 69 says a person knows something when “information comes to his or her attention under circumstances in which a reasonable person would take cognizance of it”. A buyer who read the seller’s loan file has knowledge, so the clause rescues only the careless.
SECTION 05 OF 10
Subsection 28(1): “A buyer of goods from a seller who sells the goods in the ordinary course of business takes them free from any security interest therein given by the seller even though it is perfected and the buyer knows of it”, unless the buyer knew the sale breached the agreement.
It measures the seller’s ordinary course, not the buyer’s. The rule exists so a bank’s floating charge over a retailer’s inventory does not follow every till receipt out of the store. Selling the business is not what the business does for a living.
The drafting confirms the Act contemplates that second category: subsection 28(5) deals with a vehicle “sold other than in the ordinary course of business of the seller” that is “classified as equipment of the seller”. A narrow carve-out for such sales would be pointless if 28(1) already covered them. The Act does not define the phrase; its margins are drawn by case law.
SECTION 06 OF 10
Clause 20(1)(d) extends the unperfected-interest escape only to “intangibles other than accounts”. An unperfected charge on the book debts is therefore not swept off by the sale the way an unperfected charge on the vans would be.
Running the other way, clause 4(1)(g) disapplies the Act “to a sale of accounts or chattel paper as part of a sale of the business out of which they arose unless the vendor remains in apparent control of the business after the sale”. Otherwise clause 2(b) would make that transfer registrable.
Watch the condition inside the relief: leave the seller running the business under its old name after closing and the relief is gone. The tax side runs separately — see the section 22 election on accounts receivable.
SECTION 07 OF 10
Ontario runs one registry for PPSA registrations and Repair and Storage Liens Act claims, allowing “enquiries, one transaction at a time, to be conducted against an individual debtor, a business debtor or a motor vehicle” — the three indexes in subsection 43(1). Subsection 43(2) makes the certificate “proof, in the absence of evidence to the contrary”.
The name is the whole exercise. Subsection 46(4) saves a registration from error “unless a reasonable person is likely to be misled materially” — a test Treadstone Law’s article on registration errors calls potentially fatal when the debtor name is wrong.
Its notes on how to search and buying business assets agree: use the exact legal name from the corporate record, not the trade name, and search predecessor names, since a registration surviving an amalgamation can point at a name nobody would look up. A search costs $8 online, per the Access Now fees.
SECTION 08 OF 10
A registration proves an interest was claimed, not that the loan is outstanding; it can sit on file long after the debt is gone, as Treadstone Law notes in its PPSA search article. Section 18 lets a person “who has an interest in the collateral” demand “a statement in writing of the amount of the indebtedness”, answerable “within fifteen days”.
Discharge is a registration, not a letter: under section 55 it happens “by the registration of a financing change statement”, which subsection 56(1) lets “any person having an interest in the collateral” demand once the obligations are performed. A secured party that fails to register “within 10 days after receiving a demand for it” must “pay $500 to the person making the demand and any damages resulting from the failure”.
Registering a discharge is free on the ServiceOntario fee table, which removes the last excuse for a stale registration. Treadstone Law on discharging a registration and discharge after repayment sets out the sequence: payout statement, holdback at closing, discharge registered, fresh search.
SECTION 09 OF 10
A clean search is a photograph. Subsection 48(1) says that where a debtor transfers charged collateral with the secured party’s consent, the interest “becomes unperfected fifteen days after the transfer is made” unless a financing change statement is registered; without consent, 48(2) allows thirty days.
That window is no gift. Going unperfected only helps a transferee with no knowledge of the interest, and a buyer who ran the search has it. Under subsection 48(3) the rule runs the other way: a registration against a debtor’s old name stays perfected for thirty days after the lender learns of a name change.
Subsection 51(4) says a financing statement “is effective only during its registration period”, so an expiring registration is not a discharged one. Re-search immediately before closing, and again once the discharges register.
SECTION 10 OF 10
This is the Ontario statute. Personal property security is provincial, each common-law province has its own legislation, and this article describes none of them. Québec is not a variant of the scheme at all: article 2660 of the Civil Code of Québec gives a creditor a hypothec, “a real right on movable or immovable property” carrying “the right to follow the property into whatever hands it may come”, and article 2941 provides that “Publication of rights allows them to be set up against third persons, determines their rank”.
Ontario buyers once had a creditor-notification statute on top of this. The Bulk Sales Act made a buyer of a stock in bulk deal with the seller’s trade creditors or risk the sale being set aside. e-Laws now carries the note “This Act was repealed on March 22, 2017”, citing 2017, c. 2, Sched. 3, s. 1. Treadstone Law on bulk sales agrees but gives no date, which is why the date is cited to e-Laws.
What remains is self-help. Nobody notifies the buyer, and section 39 moves the security interest with the asset whatever the agreement says. Contractual promises help — see assumed liabilities in an asset transaction and the security your own lender takes — but an indemnity is a claim against a seller, while a discharge removes the charge. Only one survives the seller spending the money.
No. The Personal Property Security Act lets the seller’s rights in collateral be transferred, even where the loan agreement prohibits it, but expressly says no transfer prejudices the rights of the secured party. Selling the equipment does not lift the charge on it — only a registered discharge does that.
Yes, if that interest was perfected. Registration does not constitute constructive notice or knowledge to third parties, but a perfected interest still binds a buyer whether or not it searched — the search protects the buyer’s own diligence, it is not a condition of the security interest applying against them.
No. That rule protects a buyer of goods from a seller who sells them in the ordinary course of its business — the customer at the counter, not the person buying the shop. It measures the seller’s ordinary course, not the buyer’s, so a full business or asset sale falls outside it.
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