How does the PPSA priority regime treat a trustee in bankruptcy compared to a secured lender?

A trustee in bankruptcy essentially steps into the position of representing the corporation's general unsecured creditors once the corporation becomes bankrupt, rather than having some special claim of its own against a lender's specific collateral. A secured lender that properly perfected its security interest under Ontario's Personal Property Security Act before the bankruptcy generally continues to have priority over that collateral ahead of the trustee's claim on behalf of unsecured creditors.

The critical distinction is perfection. An unperfected security interest is generally treated as unenforceable against a trustee in bankruptcy, even though it may have been perfectly valid and enforceable between the lender and the corporation beforehand — meaning a lender that never registered, or let a registration lapse, can find its supposedly secured claim reduced to an unsecured one the moment the trustee is appointed. This is one of the sharpest, highest-stakes consequences of the PPSA's perfection requirements, since bankruptcy is exactly the scenario where an unperfected lender has the most to lose and the least ability to fix the problem after the fact. Lenders should treat maintaining proper, current perfection as essential precisely because of how this plays out in a bankruptcy.