How to Search for Liens on a Business Being Sold in Ontario

If you are buying the assets of an Ontario business, you want to know whether a lender or creditor already has a claim on them. A security interest does not disappear just because the business is sold, so the search comes before the deal, not after.

This article explains the main searches, what each one covers, and what to do if something turns up. Which searches matter most depends on the business and the type of deal, and a lawyer can confirm that.

Why a lien follows the assets

Under the Personal Property Security Act (PPSA), 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, even if aware of it, unless they also knew the sale breached the security agreement. A sale of the whole business, or of its assets in bulk, is generally not a sale in the ordinary course, so do not count on this exception when buying a business.

The PPSR search

Ontario's Personal Property Security Registration (PPSR) system is a public database of registrations made under the Personal Property Security Act and the Repair and Storage Liens Act. You can search it against an individual debtor, a business debtor or a motor vehicle, one transaction at a time.

Anyone may ask for a search of the debtor name indexes or the vehicle identification number index, and the registrar issues a certificate. That certificate 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, $14 for a central office statement and $15 for a certified copy of a financing statement. Additional charges may apply in some cases, so check the current fee schedule.

• Search the seller's exact legal name, and any business names it operates under.
• Search the owners personally if the business is a sole proprietorship.
• Search by vehicle identification number for each vehicle you are buying.
• Keep the search certificate in your deal file.

Searches beyond the PPSR

A creditor holding a judgment can file a writ of seizure and sale of personal property with the enforcement office, and a writ against land can be filed in any county or district where the debtor may own land. A writ expires six years after it is issued unless renewed, and each renewal lasts six years from the previous expiry date. Names match only if they are identical, so the seller's exact legal name has to be searched. Procedures differ by enforcement office, so ask a lawyer to arrange these searches.

Bank Act security is a separate federal regime. A bank's rights in that security are void against the borrower's creditors and later good-faith purchasers unless a notice of intention was registered in the appropriate agency no more than three years before the security was given. Because it sits outside the PPSR, a PPSR search alone may miss it, so ask a lawyer how to search for it.

Unpaid taxes can also rank ahead of lenders. Payroll deductions and GST/HST that were collected but not remitted are deemed held in trust for the Crown despite any security interest. Whether this reaches an arm's-length buyer depends on the facts, which is why buyers also use statements of account and holdbacks.

What to do if a lien turns up

Do not assume the worst. If a search turns up a loan, ServiceOntario says to contact the lender to confirm whether the loan is still in effect and to get further details. A financing statement can be registered for a perpetual period or for a set number of years, so an old registration may still appear.

• If the debt is still owing, the usual approach is to have it paid out at closing from the sale proceeds, with the lender confirming a discharge.
• Once the secured obligations have been performed, any person with an interest in the collateral can give the secured party written notice demanding that it register a financing change statement discharging the registration.
• A person with an interest can also demand a discharge 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 after receiving a demand must pay $500 plus any resulting damages.

What to do next

• Get the seller's exact legal name and any trade names.
• Run PPSR, writ and, where relevant, Bank Act searches.
• Contact each lender that appears and ask for payout and discharge details.
• Make clearing registered liens a closing condition.
• Repeat the PPSR search shortly before closing, since new registrations can appear.
• Have a lawyer review the results and the closing documents.

Frequently asked questions