A working group of the Personal Property Security Law
Sub-Committee of the Ontario Bar Association's Business Law
Section has developed a proposal for amendments to the Ontario
Personal Property Security Act to provide for perfection
by control of deposit accounts and other forms of cash collateral.
If approved by the Ontario Bar Association, the proposals will be
submitted to the Ministry of Consumer Services for consideration.
We understand that these proposals, if adopted, would amend the
PPSA to create a new class of collateral – the
"financial account" - and provide rights for secured
parties to perfect a security interest in a financial account
"Financial accounts" would be broadly defined to
include deposit accounts and any other monetary obligation of a
financial institution in respect of funds it holds or receives as
security for an obligation. Consumer accounts would be excluded
from the definition of financial account, an approach which is
consistent with Article 9 of the UCC.
The proposed amendments would allow a secured party to perfect a
security interest in a financial account by 1) registration (this
is already provided for under the PPSA and is a departure from
Article 9 of the UCC) and 2) control.
The means by which a secured party could obtain control are very
similar to those currently in place for securities accounts as a
result of the Securities Transfer Act, 2006 (Ontario).
Those methods would include:
automatic control if the secured party is also the financial
institution that is obligated to the customer under the financial
a control agreement entered into by the customer, the secured
party and the financial institution maintaining the customer's
financial account whereby the financial institution agrees to
comply with instructions originated by the secured party in respect
of the financial account without further consent from the
A secured party with control of a financial account would have
priority over a secured party that does not have control, as well
as over a secured party that perfected its interest in the
financial account only by registration.
Importantly as well, the PPSA choice of law rules for financial
accounts would mirror those in UCC Article 9 for similar
collateral, such that the jurisdiction for determining issues of
validity, perfection and priority of a security interest in U.S.
cross-border deals could be easily established.
Dale Seymour has extensive experience acting
for banks, financial institutions, credit corporations and
corporate borrowers on a variety of cross-border and domestic
corporate lending transactions, including asset-based loans and
syndicated loan transactions.
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.
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