- Under the PPSA, security interests in personal property — equipment, inventory, accounts receivable, and similar business assets used as collateral — are perfected mainly by registering…
- The first-to-register rule has one well-established exception that surprises business owners more often than any other feature of the PPSA.
- Priority disputes tend to surface in a handful of recurring situations: 1.
A growing business often ends up borrowing from more than one source over its life — a bank line of credit, an equipment supplier's financing arm, maybe a private lender who stepped in during a tight quarter. Each one may have taken security over some or all of the same business assets. As long as the business is paying everyone, nobody looks closely at who is really first in line.
The moment the business defaults, that question becomes urgent. A secured creditor priority dispute is exactly this: two or more lenders each claim a right to the same collateral, and there is not enough value in it to pay them all. Ontario's Personal Property Security Act ("PPSA") supplies the rulebook for sorting this out.
This article explains how that rulebook generally works, where it can shift in a lender's favour unexpectedly, and what tends to happen once a real dispute breaks out.
The General Rule: First to Register, First in Line
Under the PPSA, security interests in personal property — equipment, inventory, accounts receivable, and similar business assets used as collateral — are perfected mainly by registering against the business in the province's personal property registry. As a general rule, priority between competing secured creditors runs by order of registration or perfection: whoever registered (or otherwise perfected their interest) first generally has priority over a later-registered creditor claiming the same collateral.
This is why lenders register promptly when a loan closes, rather than waiting. The registration date effectively reserves a lender's place in line, even before the loan is fully advanced in some structures.
A few practical consequences follow from this:
- Being first in time to lend money is not what matters — being first to register is.
- A lender who never registers at all is taking on real risk, because a later lender who does register properly can leapfrog them.
- Searching the registry before lending — or before buying business assets — is standard practice precisely because the public record is what priority is built on.
The Exception That Changes the Order: Purchase-Money Security Interests
The first-to-register rule has one well-established exception that surprises business owners more often than any other feature of the PPSA. A purchase-money security interest (PMSI) — broadly, security taken by a lender or supplier that actually financed the specific asset in question — can achieve super-priority over an earlier-registered general security interest covering the same collateral, provided the PMSI is registered properly.
In practice, this means a business's existing bank lender, who holds a broad general security agreement over "all present and after-acquired personal property," can find itself ranking behind a new equipment vendor's financing on that one specific piece of equipment, even though the bank registered years earlier. The PMSI holder financed the very asset in dispute, and the PPSA rewards that with a narrow but powerful priority boost.
This exception exists to keep credit flowing: without it, no supplier or equipment lender would be willing to finance new assets for a business that already has a blanket lender in place.
Scenarios That Commonly Trigger a Dispute
Priority disputes tend to surface in a handful of recurring situations:
- A business refinances with a new lender who takes a general security agreement, without confirming whether an earlier lender's registration was ever discharged.
- A supplier or equipment financier extends a PMSI on new machinery, and nobody checks whether it was registered correctly or on time.
- Two lenders separately finance different categories of the same business's assets (say, one on receivables, one on inventory) and the categories turn out to overlap.
- A business defaults, and multiple creditors — some registered, some not — all assert a claim to whatever collateral remains.
How a Dispute Actually Gets Resolved
| Step | What typically happens |
|---|---|
| 1. Search the registry | Each creditor's lawyer pulls the registration history against the business to establish who registered what, and when. |
| 2. Classify the interests | Determine whether any registration qualifies as a PMSI, and whether it was registered properly to claim super-priority. |
| 3. Apply the ranking rules | Line up the competing interests by registration date, adjusted for any PMSI exception that applies. |
| 4. Negotiate | Creditors frequently negotiate a private priority arrangement rather than litigate, particularly where the amounts in dispute don't justify the cost of a court fight. |
| 5. Litigate if needed | Where the parties can't agree, the dispute may need to go to court to be resolved. |
Most priority questions are resolved through a careful registry search and negotiation between the lenders' lawyers. It is only when the analysis is genuinely unclear, or a lot of money is on the line, that these disputes end up in front of a judge.
Frequently asked questions
Does the lender who registered first always win?
Not necessarily. First-to-register is the general starting point, but a properly registered purchase-money security interest can outrank an earlier general security interest over the specific asset it financed. The details of registration timing and description matter a great deal.
What happens if a creditor never registered its security interest at all?
An unregistered (unperfected) security interest is generally vulnerable — a later creditor who does register properly can gain priority over it, and in some circumstances an unperfected interest can be defeated entirely. This is one of the strongest reasons lenders register immediately.
Can two secured creditors just agree on their own order of priority?
Yes. Creditors can enter into a private agreement — often called a subordination or intercreditor arrangement — that reorders their priority as between themselves, regardless of registration dates. This is common in refinancing and multi-lender deals.
Do unsecured creditors get anything once secured creditors are paid?
Only what, if anything, remains after properly ranked secured claims against specific collateral are satisfied. This is a major reason unsecured suppliers and lenders often push for some form of security once they see a customer relying heavily on financing.
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