The Equipment Liens Nobody Mentioned Until Closing Week

The situation

Agnieszka had built her accounting practice in Midland over close to two decades, incorporated for years and steady enough that a buyer found her rather than the other way around. Marek, a university professor looking for a second career after his own retirement date came into view, made an offer for the share capital of the corporation at roughly $3,200,000, financed in part through his savings and in part through a loan secured against the business itself. Agnieszka had never sold a company before. She assumed, reasonably, that because the practice had no outstanding bank debt and she personally owned the building outright, the sale would be a matter of paperwork and a closing date.

The agreement of purchase and sale was structured as a share sale, meaning Marek would be buying the corporation itself, with all of its assets and, critically, all of its liabilities. That distinction matters enormously in a small business transaction, and it is one many first-time sellers do not fully absorb until someone explains what a share sale actually transfers. An asset sale, by contrast, lets a buyer pick which assets to take and leave the corporation's debts behind with the seller; the two structures carry very different risk, and the choice between them is usually driven by tax planning as much as by liability concerns. Our team was retained by Agnieszka roughly six weeks before the scheduled closing, mainly to review the purchase agreement and handle the closing mechanics. Nothing about the file looked unusual at the outset, and both sides had already agreed on price, staffing arrangements for Agnieszka's small team, and a transition period during which she would stay on part-time to introduce Marek to longstanding clients.

What the search found

Standard practice on any business sale of this size is to run a search under the Personal Property Security Act, the Ontario statute that governs security interests registered against a company's equipment, receivables, and other personal property. A PPSA search shows whether anyone else has a registered claim against assets the seller believes are unencumbered. Agnieszka's practice owned a reasonably current suite of office equipment: several networked workstations, a document imaging system, a server, and a leased postage machine, all bought and upgraded over the years as the practice grew.

The search came back with two registrations Agnieszka had not disclosed and, by her own account, had genuinely forgotten about. About four years earlier, the practice had financed a major computer and server refresh through an equipment leasing arrangement rather than paying cash outright. The lease had since been paid down substantially, but the registration securing it was still active, and it covered roughly $38,000 in remaining obligations. A second, smaller registration covered the postage equipment, worth about $4,000 still owing. Neither had been mentioned in the disclosure schedule attached to the purchase agreement, which stated that the corporation's assets were free of any security interest apart from a line item that listed none.

Marek's lawyer, Omar, raised the discrepancy immediately, and reasonably so. A share sale means the buyer inherits every liability the corporation carries into closing, registered or not. If the sale had closed with those registrations still active and unpaid, Marek would have taken over a company still legally obligated on both leases, with the leasing company entitled to repossess the equipment or pursue the corporation for the balance if payments lapsed. He was not willing to close on those terms, and he should not have been. It also raised a harder question neither side wanted to sit with: if two registrations had gone unmentioned, however innocently, what else in the disclosure schedule might be incomplete.

What we did

1. Confirmed the registrations were real and current, not stale paperwork. Our first step was pulling the underlying leasing agreements from Agnieszka's records to establish exactly what was owed, to whom, and on what terms, rather than relying on the PPSA search summary alone. Registrations can sometimes remain on file after a debt is fully repaid simply because nobody filed the discharge; that was not the case here on either registration.
2. Quantified the exposure precisely. Between the two leases, the corporation owed roughly $42,000 as of the search date. We obtained payout statements from the leasing company confirming the exact figure needed to satisfy both obligations and trigger a formal discharge of the registrations.
3. Reframed this as a closing condition, not a collapsed deal. Undisclosed liabilities are common enough in small business sales that a workable path usually exists if both sides want the deal to close. We proposed that roughly $42,000 be held back from the purchase price at closing, placed in trust, and released to pay off the two leases directly, with the balance returned to Agnieszka once discharges were registered.
4. Negotiated the shortfall in the disclosure itself. Marek's lawyer reasonably pointed out that an inaccurate disclosure schedule, even an honest oversight, is the kind of thing that erodes trust in every other representation in the agreement. To address that, we agreed to a modest additional price adjustment of about $8,000, reflecting the professor's cost of re-verifying other disclosure items through a supplementary review before closing.
5. Coordinated the discharge with the closing date. We arranged for the leasing company's payout to be processed the same day as closing, with written confirmation that discharge registrations would follow within the leasing company's normal processing window, and built a short holdback of the trust funds until those discharges actually appeared on the registry.

The outcome

The sale closed roughly three weeks later than originally scheduled, at a purchase price adjusted down by about $50,000 in total once the holdback and the disclosure-related reduction were combined, landing at approximately $3,150,000. Agnieszka received the bulk of the price at closing, with the holdback portion released to her once both discharge registrations were confirmed on file a few weeks after closing. Marek took over a corporation with no undisclosed security interests against its equipment and a clean personal property registry search to show for it.

Neither side got everything they might have wanted. Agnieszka lost roughly $50,000 off the price she had negotiated, money she had not budgeted losing, and she had to sit through several uncomfortable weeks where the deal's survival was genuinely uncertain. Marek absorbed a three-week delay to his own transition plans and had to arrange bridge financing to cover a gap while his loan disbursement schedule was renegotiated around the new closing date. But the practice sold, the corporation transferred clean, and both sides walked away from the table rather than into a dispute. Agnieszka later said the leases had simply slipped her mind entirely, paid automatically each month for years and never thought about; that is a common enough story that it is worth planning for before it happens to someone else.

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