With the passing last week of An Act mainly to implement
certain provisions of the Budget Speech of 4 June 2014 and return
to a balance budget in 2015-2016 (the "Act"), which
received assent on April 21, 2015, the Quebec government has
simplified the process for granting security in the province in
favour of a syndicate of lenders and brought that process in line
with that under the personal property security legislation of the
common-law provinces ("PPSAs") and the Uniform
Commercial Code ("UCC").
While the UCC and the PPSAs explicitly allow a debtor to grant
security in favour of an agent, for and on behalf of present and
future creditors, the absence of similar provisions in Quebec law
have historically made doing so far more difficult. Since nothing
in the Civil Code of Québec ("CCQ")
directly permitted the granting of security in favour of a third
party, it was necessary to create a more complex, indirect
structure which often led to confusion and increased costs for
lenders based outside the province and their counsel.1
As a result of the changes to Article 2692 of the CCQ embodied in
the Act, this cumbersome structure is no longer necessary. Also
problematic under the old formulation of Article 2692 was the
requirement that a particular notarial form of hypothec be used in
all cases where the obligations secured included payment of a title
of indebtedness, even if there was only a single creditor. This
requirement led most legal practitioners in Quebec to strongly
resist the practice, almost universal in other jurisdictions, of
issuing promissory notes for indebtedness where the payment thereof
would be secured by a hypothec, for fear that the hypothec would be
invalidated if not in notarial form.
The terms of the new Article 2692 of the CCQ now explicitly
provide that a legal person, partnership or trustee may grant a
hypothec in favour of the "hypothecary representative"
for all present and future creditors of the obligations secured.
Such hypothecary representative may be appointed either by the
debtor or one of the creditors, and may be a creditor of the
secured obligations, or a third party. Any obligations may be
secured in this way and the ability to secure obligations in favour
of a third party is no longer limited to the payment of titles of
indebtedness. The hypothec granted in favour of a hypothecary
representative must still be in notarial form, with certain
Moreover, while it is still possible under the new provision to
appoint a third party to hold a hypothec securing payment of a
title of indebtedness, it is now also possible for a creditor in a
non-syndicated transaction to hold such security directly, thereby
avoiding the additional cost and formalities involved in using a
notarial form of hypothec. Furthermore, a creditor can now obtain
promissory notes from a borrower, without any concern that doing so
might invalidate the hypothec granted by the borrower in his
favour, even if it was not in notarial form.
Overall, the amendments have simplified and clarified the
mechanism for taking security in the context of a syndicated loan
and brought them into line with the practice in other North
1.The most commonly used structure involved the granting
of a hypothec by the debtor in favour of an agent appointed as the
person holding the power of attorney ("fondé de
pouvoir") for the present and future creditors, the
issuance of a collateral demand debenture in favour of that agent
under and secured by such hypothec, followed by the pledge of the
debenture in favour of the syndicate members, to be held by the
agent on their behalf.
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
The British Columbia Court of Appeal has recently considered whether the doctrine of unconscionability can be invoked to set aside a contractual clause providing for the payment by one party to the other...
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