Seizure of collateral (enforcement of security)

This can matter to a business sale when the business has secured debt in default. A buyer can ask how that debt will be dealt with at closing, and a seller in default can ask a lawyer what the lender may do before a sale closes.

Ontario

Section 62(1) of Ontario’s Act says that on default, unless otherwise agreed, the secured party has the right to take possession of the collateral by any method permitted by law. Under section 62(2), property exempt from seizure under the Execution Act is exempt from that right, except for purchase-money and possessory security interests. Section 63 lets the secured party, on default, dispose of the collateral, subject to the conditions it sets, including that every aspect of the disposition be commercially reasonable.

Other provinces

British Columbia’s Act, in Part 5, gives a secured party on default, unless otherwise agreed, the right to take possession of the collateral or otherwise enforce the security agreement by any method permitted by law. Alberta’s Part 5 is also headed rights and remedies on default. This entry covers Ontario, British Columbia and Alberta only; check the rules in the province where the business is.

• Has the lender given notice of default, and what does the security agreement allow?
• Which assets are covered, and are any exempt?
• Has a receiver been appointed instead?

See what happens if I default on an acquisition loan and events of default.