Security interest

A security interest is not the same thing as ownership. The borrower keeps title and keeps using the asset day to day; the lender holds a right that only becomes active on default. That distinction matters on a sale, because equipment or receivables can be subject to a valid security interest even while they sit on the seller’s balance sheet looking unencumbered.

Attachment and perfection are two different steps

A security interest “attaches” to collateral once value has been given and the agreement covers that property — at that point it is enforceable against the borrower. It becomes “perfected,” meaning enforceable against most other creditors and later buyers, once the appropriate step is taken, most commonly a PPSA registration. An unperfected security interest can still exist and still cause problems, even though it will not show up on a routine search.

Where it ranks against other claims

More than one creditor can hold a security interest in the same property at the same time, and Canadian personal property security law generally ranks them by registration date, subject to specific statutory exceptions — certain government claims, for example, can rank ahead of even an earlier-registered lender. That is why a lien search alone does not answer every priority question, and why lenders financing the same deal often sign a separate intercreditor agreement to fix the ranking by contract instead of leaving it to the statute.

What a buyer checks for

• Whether a registered security interest exists against the specific assets being purchased, not just against the company generally
• Whether it will be discharged at or before closing, and who is responsible for arranging that
• Whether equipment on the premises is actually owned by the seller or is subject to a lease or conditional sale that carries its own security interest