Can the seller repossess the business if I stop making VTB payments?

A vendor take-back (VTB) makes the seller a lender to you for part of the price, so a missed payment puts the seller in the position of a lender with a borrower in default. Whether that lets the seller take the business back depends on what security the seller took at closing and on provincial law, not on the label “take-back”. What if the buyer misses a vendor take-back payment? looks at the same event from the seller’s side.

A promise to pay is not a claim on the business

A take-back backed only by a promise to pay gives the seller a claim for money. Rights over particular property come from a security interest, which the Northwest Territories registry describes as establishing the secured party’s rights to the secured property against the owner if the terms of an obligation are broken, usually missed payments.

What the seller may hold

A seller can take a security interest in the business’s assets, a pledge of the shares, or both. Ontario’s Personal Property Security Act defines inventory, equipment and investment property, which includes securities, so either route fits. The seller registers its interest to fix its ranking, and if your bank also lent, whichever registered first generally ranks first unless the seller agreed to subordinate, which the Act allows. BDC notes that a financing structure may combine your own investment, a business loan and seller financing.

What default looks like

On default, the Ontario Act gives the secured party the rights in the security agreement plus those in the Act, including, unless otherwise agreed, the right to take possession of the collateral by any method permitted by law. To sell the collateral, the secured party must give notice that it will be disposed of unless the amounts due are paid and that the debtor may be liable for any deficiency, and anyone entitled to notice may redeem it before disposal. The debtor’s rights in these provisions cannot be waived or varied except as the Act provides. Repossession is therefore a defined process with notice and a chance to pay.

Province and documents decide the detail

Other provinces and territories have their own personal property security laws and registries, so check the statute where the business operates. In Québec, the Civil Code says a seller who elects to take back the property sold on the buyer’s default is governed by its rules on the exercise of hypothecary rights. The security agreement, and any subordination terms with your bank, decide what this seller can actually do.