Bank Act security (section 427)

Section 427(1) of the Bank Act says a bank may lend money and make advances to a wholesale or retail purchaser or shipper of, or dealer in, certain products or goods, wares and merchandise, on the security of those products or goods; it also lists other borrowers, such as manufacturers, farmers and fishermen. The Act says the security may be given by signing and delivering to the bank, by or on behalf of the person giving it, a document in the prescribed form or in a form to the like effect. See whether a bank’s security can stop a sale of assets.

The notice of intention

Under s. 427(4)(a), the bank’s rights and powers in the property are void as against creditors of the person giving the security, and against subsequent purchasers or mortgagees in good faith, unless a notice of intention was registered in the appropriate agency within the time stated there. Section 427(5) defines “agency” in a province as the office of the Bank of Canada or its authorized representative, other than its Ottawa office. Section 427(4)(d) lets a person inquire whether a notice is registered. The Bankruptcy and Insolvency Act also refers to s. 427 security.

What to check or ask

• Whether the seller has given a bank security under the Bank Act, alongside any security interest registered provincially
• Whether a notice of intention is registered, and what the bank will release at closing