Assignment of accounts receivable

In an asset sale the buyer may take over invoices the seller has issued but not yet collected. The agreement then assigns those receivables. The customer who owes the money is called the account debtor in the Ontario statute. This entry covers how the assignment affects that customer in Ontario and Quebec.

Ontario

The Personal Property Security Act applies, under section 2 and subject to the exclusions in subsection 4(1), to a transfer of an account or chattel paper even though the transfer may not secure payment or performance of an obligation. One exclusion bears directly on a business sale: under clause 4(1)(g) the Act does not apply to a sale of accounts as part of a sale of the business out of which they arose, unless the vendor remains in apparent control of the business after the sale. Where the Act applies, section 40 lets an account debtor pay the assignor until it receives notice reasonably identifying the rights assigned, and may still pay the assignor if, on request, the assignee does not furnish proof of the assignment within a reasonable time. Unless it has made an enforceable agreement not to assert them, it may also raise defences available against the assignor, including equitable set-off. A term that prohibits or restricts assignment of the whole account binds the assignor only to the extent of making it liable to the account debtor for breach of their contract, and is unenforceable against third parties.

Quebec

In Quebec, article 1637 of the Civil Code lets a creditor assign all or part of a claim, but not in a way that is injurious to the debtor’s rights or makes the debtor’s obligation more onerous. Under article 1641, the assignment may be set up against the debtor and third persons once the debtor has acquiesced in it or received a copy or pertinent extract of the act of assignment or any other evidence of it that may be set up against the assignor, or, if the debtor cannot be found in Quebec, once a notice is published under the Code of Civil Procedure. Under article 1642, an assignment of a universality of claims, present or future, may be set up by registration in the register of personal and movable real rights, provided the other formalities for debtors who have not acquiesced in it are observed. For other provinces, check the rules in the province where the business is. Ask when and how customers will be told, and what the contracts say. See the receivables checklist and accounts receivable.