How to Check for Liens and Security Interests on an Ontario Business

If you are buying a business, you want to know whether its equipment, inventory or accounts are pledged to a lender. If they are, the debt can follow the assets to you.

This article explains how to search the Ontario registry, what other searches to add, and what to do when a registration turns up.

Why liens matter to a buyer

Under the Personal Property Security Act, a security interest stays attached to the collateral when it is sold or otherwise dealt with, unless the secured party authorized the dealing free of the security interest. It also extends to the proceeds. A buyer of business assets can therefore take them subject to the seller's lender's security.

There is an exception for buyers in the ordinary course of business. A buyer of goods sold in the ordinary course of the seller's business takes them free of the seller's security interest, unless the buyer also knew the sale breached the security agreement. That protects someone buying a single item off a retailer's shelf. A sale of the whole business, or of its assets in bulk, is generally not a sale in the ordinary course.

How to run a PPSA search

Ontario's Personal Property Security Registration system is a public database of registrations made under the Personal Property Security Act and the Repair and Storage Liens Act. You search against an individual debtor, a business debtor or a motor vehicle, one transaction at a time. Anyone may ask for a search, and the registrar issues a certificate that is proof of its contents unless there is evidence to the contrary.

You can search online through ServiceOntario's Access Now. The listed fees are $8 for an online response and $8 for a certificate response. A central office statement costs $14 and a certified copy of a financing statement costs $15. Additional charges can apply in some cases, so confirm the current fee when you search.

• Search the seller's exact legal name, and any previous or trade names
• Search each owner too, if the seller is a sole proprietor
• Search by vehicle identification number for each vehicle being sold
• Keep the certificate for your closing records

Searches the PPSR does not replace

A writ lasts six years from issue unless renewed, and each renewal lasts six years from the previous expiry date. An older writ may therefore still be live. Ask a lawyer how to search for Bank Act security in your deal.

What to do about registrations you find

If a search shows a loan, ServiceOntario says to contact the lender to confirm whether the loan is still in effect and to get further details. A registration can be perpetual or for a set number of years, so an old registration may still appear in a search.

Once the secured obligations have been performed, a person with an interest in the collateral can give the secured party written notice demanding a financing change statement that discharges the registration. The same demand is available if the named secured party never acquired a security interest. A secured party that fails without reasonable excuse to register the discharge within 10 days of the demand must pay $500 plus any resulting damages.

• Live loan: negotiate a payout from sale proceeds, or the lender's written consent to the sale
• Paid-off loan: ask for a discharge before closing
• Stale or mistaken registration: make the written demand to discharge

What to do next

• Order the PPSR searches in every name the business has used
• Add writ searches and ask about Bank Act security
• Contact each lender named to confirm the debt status
• Write payout and discharge steps into the purchase agreement
• Confirm discharges appear in a fresh search after closing

Have a lawyer review the results before you waive conditions, especially if several lenders appear.

Frequently asked questions