In asset purchase transactions involving the sale of accounts receivable, questions often arise about whether a registration under the applicable provincial Personal Property Security Act (PPSA) will be necessary. The answer to this questions depends on a number of factors, including where the seller’s accounts receivable are located and whether a party is the purchaser or the seller of the assets.
If the accounts receivable of a seller located in Ontario are being sold, an Ontario PPSA financing statement may need to be filed showing the seller as “debtor” and the purchaser as “secured party.” This is due to section 2(b) of the Ontario PPSA which stipulates that the PPSA applies to a “transfer of an account or chattel paper even though the transfer may not secure payment or performance of an obligation.” On the other hand, section 4(1)(g) of the PPSA excludes the sale of accounts where it is part of a transaction to which the Ontario Bulk Sales Act applies.
Irrespective of these provisions, the best approach may depend on whether a party is purchasing or selling the assets in question. By making a registration, the purchaser may be able to avoid arguments with third parties down the road about who has rights in the accounts receivable. However, sellers may also wish to take a different approach in order to avoid having a PPSA registration “cloud” their title to their remaining assets.
When seeking to buy or sell assets, purchasers and sellers should work closely with legal counsel to make sure that all of the above considerations are being taken into account.