Canada: The New Subsection 46(2.1) of The Personal Property Security Act

Last Updated: January 14 2011

Article by Aaron Collins1


In the June 2010 issue of Collateral Matters, I detailed some of the proposed amendments to the Personal Property Security Act (Ontario) (the "PPSA") that were contained in Ontario's "Open for Business Act" ("Bill 68"). Bill 68 has now received Royal Assent on October 25, 2010, and the amendments to the PPSA which are now in force include: (i) narrowing the definition of a purchase-money security interest ("PMSI") to exclude sale-leaseback transactions; (ii) extending the length of time a creditor has to register a PMSI from 10 to 15 days; (iii) providing for additional situations in which a debtor can demand a financing change statement from a creditor to remove or limit collateral classification; and (iv) providing that the description of collateral on a financing statement or financing change statement will limit the scope of a check-box classification.

For a further discussion of the amendments to the PPSA enacted by Bill 68, please see the June 2010 issue of Collateral Matters which can be found here. In this article I will delve a little deeper into the amendment to the PPSA which re-introduces the concept of limiting collateral classifications.

New Subsection 46(2.1)

In my June 2010 article, it was noted that a 2007 amendment to the PPSA2 removed the prior subsection 46(3) which stated that the general collateral description (line 12 on a financing statement) which purports to limit the scope of the collateral would do just that: it would narrow the collateral classification indicated by the check box on line 10 of that financing statement. This meant that, for example, a PPSA registration that checked only the "Inventory" box in line 10 but had general collateral description in line 12 that went on to limit the classification of "Inventory" to a specified line of goods would only perfect a security interest in that specific line.

As a result of the 2007 amendment, a general collateral description could not be relied upon to limit the scope of perfection of a collateral classification check box.3 Given the uncertainty, the general practice became that a creditor seeking a security interest in certain collateral required an estoppel or waiver letter indicating precisely the scope of the security interest of any prior secured party who has checked off the applicable collateral classification boxes.4

Bill 68 re-introduced language of the prior subsection 46(3) in subsection 46(2.1) to provide once again that the "general collateral description" on line 12 of PPSA financing statements narrows the scope of category boxes checked on line 10 in the collateral classification:

(2.1) Except with respect to rights to proceeds, where a financing statement or financing change statement sets out a classification of collateral and also contains words that appear to limit the scope of the classification, then, unless otherwise indicated in the financing statement or financing change statement, the secured party may claim a security interest perfected by registration only in the class as limited.

However, it should be noted that, despite new subsection 46(2.1), the practice of obtaining a PPSA estoppel or waiver letter may still be more common in Ontario than other jurisdictions because ambiguity still exists.

The new provision states that unless otherwise indicated in a financing statement or financing change statement, a description that limits the scope of a collateral classification will "limit the scope of the classification" and that the security interest is perfected by registration "only in the class as limited." This language implies that there could be a situation where a collateral description does not limit all of the classes of collateral that have been checked off in the financing statement.

Consider a situation where a secured party files a financing statement that includes "Inventory," "Equipment," "Accounts," "Other" and "Motor Vehicles," but has added a collateral description that lists specific pieces of the debtor's equipment. In such a case, has the secured party limited the perfection of its security interest to only those specific pieces of equipment? Or has the secured party only limited the perfection of its security interest in the assets of the debtor that constitute "Equipment" to those specific pieces described in the financing statement, leaving all other collateral classifications unlimited? The language of new subsection 46(2.1) would seem to suggest that it is only the secured party's interest in "Equipment" that is limited to the specific pieces described, because the secured party can claim a security interest only "in the class as limited." One would expect that, if the intent of the Ontario Legislature were to limit the perfection of the entire security interest to only those pieces of equipment, the PPSA would provide a much clearer statement5, but that is by no means evident.

Jurisprudence under the Prior Subsection 46(3)

Courts in Ontario have considered these questions in a few instances under the old subsection 46(3)6, but have, unfortunately, come to different conclusions that leave some difficulty in making any pronouncements as to best practices.

In Adelaide Capital Corp. v. Integrated Transportation Finance7 ("Adelaide"), the Ontario Court (General Division) dealt with a case where a secured creditor held a debenture granting a fixed charge over specific trailers and a floating charge over all assets of the debtor. The secured party registered a financing statement that checked off "Inventory," "Equipment," "Accounts" and "Other," but also added a collateral description which went on to describe 50 trailers by serial number. In Adelaide, Justice Blair held that the perfection of secured party's interest was limited to the 50 trailers, despite the fact that the financing statement indicated a security interest in all collateral classifications, noting that:

Filling in the general collateral description portion of the financing statement is optional under the PPSA. Having chosen to fill in that portion, however, the secured creditor risks limiting the collateral that is protected by perfection through registration to something less than what may, in fact, be encompassed by the security instrument, if words are used which fail to make it clear that something other than what is described on lines 13 to 15 is also caught by the registration. Here, the general description appears to limit the scope of the registration to the collateral delineated — 50 Roussy trailers specifically set out by serial number.8

The line of reasoning in Adelaide, that a collateral description limits the scope of an entire financing statement, was followed by the Ontario Superior Court of Justice in the more recent case of Re Tiger Lease Inc.9 The above quote from Adelaide would seem to suggest that any collateral description in a financing statement will necessarily limit the collateral classifications which have been checked.

However, in Re Linotext Digital Printing Inc. ("Linotext")10, the Ontario Court of Justice (General Division) dealt with somewhat similar circumstances, but came to a different conclusion. In Linotext, two secured creditors checked off "Inventory," "Equipment," "Accounts" and "Other" in their financing statements, but then added a collateral description stating "re: Lease 11518" and "re: Lease 90048." Justice Epstein distinguished Linotext from Adelaide, stating that in Adelaide:

[T]he description was so specific that it clearly appeared to limit the scope of the registration to the collateral delineated. In my opinion, the present case is different in that the description "re: Lease ..." is not so specific as to signal a limitation. [...]

In the present case, [the secured creditors] checked off all classes of collateral, and referred to their respective lease in the general collateral description of the financing statement. Having checked off all classes of collateral, it is reasonable to conclude that [the secured creditors] had security interest in all forms of collateral, and that the referenced lease consisted of interest in some or all those classes. In my opinion, this would not convey a limitation. At most, it would lead a reasonable person to make further inquiries into the security interest of the registrant.11

Justice Epstein went on to discuss the fact that the purpose of the PPSA registration system is "to alert people using the system to interests being asserted and to provide such persons with sufficient information to facilitate further inquiry."12 Having found that the collateral description of "re: Lease ..." where all collateral classifications are checked would not have materially misled a reasonable person and only would have prompted such person to make further enquiries, Justice Epstein held that the security interest of the secured creditors in Linotext was not limited by their respective collateral descriptions.


While it is clear that there is quite a difference between the collateral description in Adelaide and those in Linotext, what remains unclear is when a collateral description will actually cross the line and limit all collateral classifications in a financing statement. Is that point reached when serial numbers are added to a collateral description, as was the case in Adelaide? Or will something less than serial numbers serve to limit all collateral classifications?

These questions may seem academic, but, as in Adelaide and Linotext, the results can be troublesome. The practical effect of these cases is twofold. First, potential lenders would be wise to make further enquiries and seek PPSA estoppel letters from a prior secured creditor who has registered a financing statement that includes classifications of collateral which overlap with that lender's security interest, regardless of whether there is a collateral description in such financing statement. Second, secured creditors who add a collateral description to their financing statement run the risk of limiting the classifications of collateral that are protected by perfection to something less than what may, in fact, be encompassed by the security document.

The changes to the PPSA in Bill 68 are welcome changes that provide clarity to certain sections which were amended as a result of hastily-enacted previous legislation. However, in the case of subsection 46(2.1), a further amendment to provide clarity on the issue of when a collateral description will limit the collateral classifications in a financing statement would have been appreciated.


1.The author wishes to thank Jesse Rosensweet for his assistance in researching and writing the predecessor to this article, entitled "Proposed Changes to the Personal Property Security Act", which appeared in the June 2010 edition of Collateral Matters, and Alyssa Keon for her assistance in the research used in this article.

2.Enacted pursuant to the Ministry of Government Services Consumer Protection and Service Modernization Act, 2006, S.O. 2006, c.34.

3.This was a result of plans by the Ministry of Government Services to modernize the Ontario financing statement and financing change statement forms by removing the check boxes altogether. However, this plan was delayed to allow for updates to the Ontario registry computer systems.

4.Richard H. McLaren, The 2010 Annotated Ontario Personal Property Security Act (Toronto: Carswell, 2009) at 347.

5.For example: "Except with respect to rights to proceeds, where a financing statement or financing change statement sets out a classification of collateral and also contains words that appear to limit the scope of the classification, then, unless otherwise indicated in the financing statement or financing change statement, the secured party may claim a security interest perfected by registration as limited by such words contained in such financing statement or financing change statement."

6.As noted above, the prior subsection 46(3) was identical to the new subsection 46(2.1).

7.(1994) 16 O.R. (3d) 414.

8.Adelaide, at para. 65.

9.(2006) C.B.R. (5th) 7.

10.(1997) 48 C.B.R. (3d) 21.

11.Linotext at paras. 28-29.

12.Linotext at para. 31

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.