On September 1, 2012, the Personal Property Security
Amendment Act, 2011 (the "Act") came into
force, amending the Personal Property Security Act
("PPSA"). Specifically, by broadening the definition
of licences in the PPSA, the Act allows borrowers
to use transferrable licences regarding personal property as
collateral to secure loans, and allows lenders to register a
security interest in such a licence in the B.C. Personal Property
The changes to the PPSA embodied in the Act
originated with the 2008 Supreme Court of Canada decision,
Royal Bank of Canada v. Saulnier, in which the court held
that fishing licences were "property" for the purposes of
the federal Bankruptcy and Insolvency Act and Nova
Scotia's Personal Property Security Act. This allowed
fishing licences to be pledged as security, which allowed fishermen
in Nova Scotia easier access to loans and to expand their
businesses. In British Columbia, the changes to the PPSA
should increase access to credit for business owners with
transferrable licences, reduce the time and cost associated with
credit transactions, and in turn help grow business in the
First and foremost, the Act amended the definition of
"licence" in the PPSA, which definition now
includes a broad class of instruments that confer rights to
acquire, manufacture, produce, sell, transport, grow, harvest, or
otherwise deal with personal property; provide services; or harvest
timber. The amended definition of "licence" will apply to
and benefit business owners that have a wide variety of licences,
such as retail liquor, commercial fishing, forestry, security
business and guide outfitter licences, and other types of
However, it is important to recognize that the use of licences
as collateral is subject to several limitations and restrictions.
Some of these arise from the nature of licences themselves, such as
express contractual terms precluding the use of a licence as
collateral, while others are imposed by the framework of the
PPSA as it applies to licences.
In the latter case, the Act imposes three critical
restrictions on the use of licences as collateral under the
PPSA framework: a limitation on seizure, a limitation on
disposition, and a limitation on retention.
If a secured party elects to seize and dispose of a licence due
to breach of a security agreement, the Act provides for
some special rules for secured parties that apply specifically to
licences, and not to other forms of collateral. To seize a licence,
a secured party must provide a notice of seizure to both the debtor
and the supervising government minister or grantor of the licence.
In the case of licences granted under statute, a secured party must
send a copy of the notice of seizure to the minister responsible
for the statute under which the licence was issued. If a license
was not granted under statute, a secured party must provide a copy
of the notice to the grantor of the licence, or the successor to
the grantor, if applicable.
To dispose of the licence, the Act requires a secured
party to dispose of the licence pursuant to its terms and
conditions, and the terms and conditions that, by law or contract,
apply to that licence.
If the secured party elects to take the collateral in
satisfaction of the debt, it is subject to the same restrictions as
in the case of a seizure and disposal: namely, it may only retain,
hold or dispose of the licence in accordance with the terms and
conditions of the licence itself, and the terms and conditions
that, by law or contract, apply to the license. In the case of
forest licences, the secured party must obtain the consent of the
minister responsible prior to retaining, holding, or disposing of
The above noted restrictions may limit the use of licences as
collateral. The origin of a licence may give cause a potential
creditor to hesitate when considering whether to accept the licence
as collateral. In the case of statutory licences, the creditor may
be confident in both the security and value of the licence due to
the involvement of the provincial government. However, government
involvement may also deter potential creditors who do not wish to
involve the provincial government in the enforcement of their
security interest in the event of default. In the case of
non-statutory licences, in addition to concerns about the security
and valuation of the licence, potential creditors may also be
deterred by the prospect of assignments or transfers of the licence
by the original grantor, and may be hesitant to involve themselves
with parties they do not know.
In any case, the involvement of a third party, whether
governmental or private, in the seizure and/or disposition of a
licence may decrease the attractiveness of a licence as collateral
to a potential secured party.
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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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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