The failure to perfect a security interest could result in
losing property rights altogether despite being the unqualified
owner of the property. A very recent example of this is the case of
Wells Fargo Foothill Canada ULC v Big Eagle Hydro-Vac
Inc., 2015 ABQB, 546 (Wells Fargo).
Wells Fargo addressed competing claims to a
debtor's property in the oil and gas industry. The debtor, Big
Eagle, was subject to receivership proceedings and the appointed
Receiver was tasked with, among other things, selling Big
Eagle's property and distributing the proceeds to creditors.
Wells Fargo had taken a general security interest in all present
and after acquired property of Big Eagle. Gator Frac, the competing
security interest holder, had leased fracking equipment to Big
Eagle. Gator Frac did not register its security interest in the
Alberta Personal Property Registry, but the leases were terminated
prior to the receivership. The equipment was at Big Eagle's
yard waiting to be returned to Gator Frac by the time the
Receivership Order was issued.
Both Wells Fargo and Gator Frac made a claim against the
equipment. Wells Fargo argued that it formed some of the property
of the debtor and was therefore available for sale to satisfy Wells
Fargo's loan. Gator Frac argued that the leases were terminated
such that the property belonged to Gator Frac – not Big
The Court agreed with Wells Fargo and found that the equipment
was available to the Receiver for sale despite the fact that the
leases for the equipment were terminated prior to Big Eagle going
into receivership. The Court held that possession of the equipment
by Big Eagle was still sufficient to include it in the receivership
While Wells Fargo reminds us of the importance of
perfecting a security interest by registering it in the Personal
Property Registry, it also instructive in other ways:
a) Possession is important –
any equipment that had been returned to Gator Frac's yard in
Texas may have avoided sale as part of the receivership;
b) Be creative if circumstances
permit – had Gator Frac arranged a purchase money security
interest with the Debtor in respect of the Units, or effectively
registered one, Gator Frac's interest may have had priority;
c) Enter into clarifying agreements
at the outset – Gator Frac could have entered into a priority
and postponement agreement with Wells Fargo pursuant to which Gator
Frac's interest would have been in priority to Wells
Fargo's general security interest.
In today's economic climate, we may hear of more disputes
over competing security claims. Parties will need to consider the
variety of options available to them in order to protect and
enhance their security and property interests as much as
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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