On May 2, 2013, the Ontario government tabled its annual budget,
announcing its intention to amend the Personal Property
Security Act (Ontario) (the "PPSA"). While the
specific details of the amendment remain unclear, it appears that
the changes will generally follow the recommendations of the
Ontario Bar Association's Personal Property Security Law
Subcommittee ("the Committee"). If the amendment follows
the Committee's recommendations closely, it would permit
creditors to obtain an automatic first priority security interest
over cash collateral accounts under the creditor's control.
The Committee's recommendations would create a new class of
collateral: "financial accounts." Financial accounts are
defined broadly to include: (i) deposit accounts maintained by the
financial institution; and (ii) any other monetary obligation of a
financial institution in respect of funds or received by that
financial institution as security for an obligation. Notably
excluded from financial accounts are "consumer accounts,"
which are defined as accounts used by natural persons for personal,
family or household purposes. The proposed amendments also include
a broad definition of a "financial institution" in order
to encompass any financial entity that regularly receives cash
collateral as security. This definition is drafted with the intent
to include all significant creditors in Canadian financial markets
transactions including, but not limited to, the Crown, pension
funds and mutual funds.
Under the current PPSA regime, security over cash collateral can
be perfected by registration. Security over money may also be
perfected by possession, however the case law is unclear as to
whether funds held in a cash collateral account are considered
"money" or "intangibles" (which may not be
perfected by possession). In addition, security over cash
collateral can also be obtained through other legislation and court
orders. By implementing the Committee's recommendations,
clarity will be achieved as secured creditors could perfect an
automatic first priority security over cash collateral by control.
In other words, creditors with control over such accounts will
obtain priority to all existing security interests, whether
perfected by registration or other means. The result is a clear,
certain, automatic and instant first-priority security interest
over cash collateral.
The Committee proposed three ways to establish control:
Automatic Control. A financial institution will automatically
have control if it holds the financial account of the
Control Agreements. If the financial account is held by a third
party, the secured creditor has entered into a control agreement
that provides that the third party will follow its instructions
concerning the disposition of the account.
Transfer to the Financial Institution's Account. A secured
creditor will automatically have control if it acts as the customer
with respect to the debtor's account at a financial
The current regime for cash collateral under the PPSA is plagued
with uncertainty that may be detrimental to creditors handling
multiple secured transactions daily. The proposed amendments follow
Article 9 of the United States Uniform Commercial Code
which already permits the perfection of cash collateral by control.
This change aligns with the control regime applied to securities
accounts under the Securities Transfer Act, 2006 (Ontario)
and would enhance certainty and facilitate cross-border
transactions between debtors and creditors. The implementation of
this regime is highly desirable for secured creditors, as
transaction costs are high given the current need to devise
strategies to obtain a first priority security interest over a
debtor's cash collateral. The inclusion of "financial
accounts" and perfection through control will provide clarity
and reduce costs in respect of obtaining an unassailable first
priority security interest over cash collateral.
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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