PPSA Disputes in Ontario and How They Put Business Assets at Risk

PPSA disputes arise when lenders, business owners, and other creditors disagree over who has a legal claim to business assets under Ontario's Personal Property Security Act. These disagreements often surface when a company defaults on a loan, runs into financial difficulty, or tries to secure new financing. A registration error, competing security interests, or a disagreement over loan terms can put equipment, inventory, and other valuable assets at risk.

At Gionet Fairley Wood LLP, we work with businesses and creditors involved in commercial disputes, including disagreements over security interests in personal property. Understanding how the Act works, and where problems tend to arise, can help business owners recognize risks before they turn into costly litigation. Every dispute turns on its own agreements, registration details, and timing, so the outcome always depends on the facts.

What Are PPSA Disputes and Why Do They Happen?

A PPSA dispute is a disagreement over the validity, scope, priority, or enforcement of a security interest in personal property. The Personal Property Security Act, R.S.O. 1990, c. P.10, governs transactions in which personal property assets, from machinery, vehicles, and inventory to intangibles such as accounts receivable, are used as security for a debt. Unlike a mortgage registered against land, these interests attach to property that can be moved, sold, or replaced.

For example, a business seeking financing might sign a general security agreement that gives its lender an interest in some or all of its present and future business assets. The lender then registers a financing statement in Ontario's Personal Property Security Registration system to give public notice of its interest and protect its position against competing claims.

Problems arise when the parties read those rights differently. A lender may believe its registration lets it seize certain assets, while another creditor claims a superior interest in the same property. Disputes also develop over assets that have been sold, replaced, leased, or transferred, where the parties disagree about whether the security agreement still covers them. A business owner might even discover that an old registration is blocking a new loan or the sale of business assets. 

How PPSA Registration Errors Can Affect a Creditor's Rights

Registration errors are one of the most common causes of PPSA disputes. A registration must contain the required details, and mistakes in a debtor's legal name or the description of the collateral can create serious problems.

Consider a lender that registers a security interest against a corporation using an incorrect legal name. If the corporation later becomes insolvent, another creditor or a trustee in bankruptcy may challenge the registration on the basis that a reasonable person would likely be materially misled by the error, which is the test the Act applies. 

If a court agrees, the lender’s security interest may be treated as unperfected. Perfection is the step that makes a security interest effective against other creditors, usually by registering it. Without it, the lender can fall behind competing creditors and may struggle to recover from the secured assets, even though the borrower signed a valid security agreement. Not every spelling mistake has that effect, and the result turns on the nature of the error.

Who Has Priority When Two Creditors Claim the Same Assets in Ontario?

In most PPSA disputes over priority, the first creditor to register or perfect its security interest wins, but the Act contains important exceptions. A business may borrow from a bank, finance equipment through a separate lender, and later receive credit from a supplier, leaving several creditors with claims to the same assets.

The best-known exception is the purchase-money security interest, commonly called a PMSI. A supplier or lender that finances a business's purchase of specific equipment or inventory can move ahead of earlier creditors if it meets the Act's strict timing requirements. For equipment, that generally means registering before, or within 15 days after, the business obtains possession. For inventory, the creditor must register and give written notice to certain earlier-registered secured creditors before the business obtains possession. 

A common dispute arises when a supplier claims its PMSI outranks a bank's earlier general security registration, and the bank argues that the supplier missed one of those requirements. When a business defaults or enters insolvency proceedings, the answer can decide which creditor is paid and which is not.

What Happens When a Lender Enforces Its Security Interest?

When a borrower defaults, a secured creditor may take possession of the collateral and sell it, but only within the limits set by the security agreement and the Act. Any sale must be carried out in a commercially reasonable manner.

A business may dispute whether a default actually occurred, whether the lender followed the proper procedures, or whether the seizure was permitted at all. For example, a lender that takes possession of valuable machinery may face a claim if the borrower believes the sale was poorly handled or the equipment sold for far less than it should have.

For business owners, enforcement can interrupt operations and cut off revenue. For creditors, mistakes in the enforcement process can lead to legal claims and financial liability.

Why Can a Paid-Off PPSA Registration Still Cause Problems?

Paying off a loan does not automatically remove the related PPSA registration from the public record. A registration left in place after the debt is repaid can stall new financing or the sale of business assets.

A prospective lender may find the old registration during its due diligence and refuse to advance funds until it is cleared. A purchaser may worry that the assets remain subject to another creditor's claim. The Act gives a debtor a way to demand, in writing, that the secured party discharge or amend a registration once the obligations are paid. The secured party must then comply within 10 days of receiving the demand. If it does not, the court can order the registration discharged, and the secured party can be liable to pay the debtor $500 plus any resulting losses.  

Businesses should address outstanding registrations as part of every loan repayment, refinancing, and asset sale. If a lender refuses to cooperate, legal advice can help establish the available options.

How Gionet Fairley Wood LLP Can Help With PPSA Disputes

Our commercial litigation team reviews security agreements and registration records, assesses competing creditor claims, and advises on disputes involving priority, enforcement, and the discharge of registrations. We look closely at the facts behind each disagreement and the commercial interests at stake, whether we are acting for a business owner protecting its assets or a creditor working to recover the money it is owed.

We work with businesses throughout Barrie, Simcoe County, Muskoka, Grey County, Bruce County, and across Ontario.

If a PPSA registration is affecting your business, or you are involved in a dispute over a creditor's rights to personal property, contact Gionet Fairley Wood LLP at 705-468-1088 or visit our contact page to discuss your situation with our commercial litigation team.

The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.