The Ontario PPSA1 system allows secured parties
to complete and file financing statements against debtors without
their prior consent. To ensure the accuracy and appropriateness of
the registrations made, the PPSA also gives debtors and third
parties certain rights, including tools to obtain further details
of the registrations made. One of those tools is Section 18 which
allows debtors and third parties to request, among other things,
that secured parties provide copies of the security agreement and
details of the debt secured, and confirm the scope of the security
interest claimed, in each case within 15 days of a
request.2 Section 18 is the provision that enables
a prospective secured creditor to request PPSA estoppel letters or
acknowledgments in the context of a proposed new financing.
A recent Ontario case has shown that these requests for
information cannot be ignored.
involved the sale of a business where the vendor
(Markplan) received a general security agreement
(GSA) from the purchaser (MAC) to
secure the repayment of the deferred portion of the purchase price
of the assets. As part of the sale arrangements, Markplan was
required to execute a subordination agreement in favour of another
secured creditor (Osman) related to the purchaser
who provided most of the acquisition funding.
When MAC defaulted on the deferred payment, Markplan wrote to
MAC and Osman requesting specific information pursuant to section 4
of its GSA. When the requested information was not provided,
Markplan brought a court application to obtain that information as
well as disclosure of other information pursuant to Section 18 of
the PPSA in its capacity as a registered security interest
holder.4 Instead of responding to the request for
information, MAC and Osman filed lengthy court materials on issues
unrelated to the information requested. They ignored the
information request and launched a litigation campaign suggesting
that Markplan was coming to court with unclean hands, presumably to
support a later set-off claim against the deferred portion of the
purchase price owed by MAC to Markplan.
The court found that Osman had no reasonable basis to resist
producing the requested information under Section
18.5 It concluded that the refusal to provide
information was done as a stall tactic, pure and simple, in an
effort to drive up Markplan's legal costs.6
At the end of the day, MAC and Osman were required to disclose
the requested information and due to their delaying tactics, the
court awarded substantial indemnity costs against them in excess of
No mention was made by the court in its judgment as to why the
disclosure of information was so strongly opposed. In any
event, it is clear that secured lenders do need to respond promptly
and in good faith to information requests properly made under
Section 18 of the PPSA or risk an adverse costs award against them
for a failure to do so.7
1 Personal Property Security Act, RSO 1990, c P.10
2 Section 18(1) of the Ontario PPSA.
3Markplan Inc. v. Magazine Acquisition Corp., 2014
ONSC 1730 [Magazine Acquisition].
Motion for leave to appeal the award of costs was dismissed, 2014
4 Magazine Acquisition, at paras. 4 and 5.
Although the judgment indicates that Markplan requested a copy of
the Osman credit agreement pursuant to Section 4 of its GSA, the
judgment does not specify exactly what information was requested
under Section 18.
5 Magazine Acquisition, at para. 14.
6 Magazine Acquisition, at para.
7 Under Section 18(7) of the PPSA and Section 2 of
Ontario Regulation 56/07, a secured party is permitted to require
payment in advance of certain nominal charges for each statement or
copy of a security agreement required to be provided under section
18(1), but the debtor is entitled to a statement without charge
once in every six months.
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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