On December 31, 2015, amendments to the conflict of laws provisions under the Ontario Personal Property Security Act (the PPSA) will be proclaimed into force.
Secured parties should ensure that they perfect their security interests and search in the right jurisdiction in accordance with the new rules. A brief summary of the amendments is set out below.
Summary of Current Law and Amendments
Under the PPSA, the question of where to register in order to perfect a security interest is answered according to the type of collateral being granted as security. The amendments clarify the appropriate place to perfect security interests in the following:
- mobile goods (i.e. goods normally used in more than one jurisdiction if the goods are equipment or inventory leased or held for lease by a debtor to others); and
- non-possessory security interests in securities, instruments, negotiable documents of title, money and chattel paper (collectively, Intangible and Mobile Collateral).
Perfection of a security interest in Intangible and Mobile Collateral is governed by the law of the jurisdiction where the debtor is located. Currently, a debtor is deemed to be located at the debtor's place of business or at the debtor's chief executive office if there is more than one place of business. Since the PPSA does not define the term "chief executive office", it is often unclear where a secured party should perfect its security interest in transactions involving Intangible and Mobile Collateral.
The amendments simplify the test for determining the location of the debtor by replacing the current rules under the PPSA with the following rules:
|Type of Debtor||Jurisdiction for Registration|
|Individual||Where the individual's principal residence is located|
|Partnerships that are not Limited Partnerships||If the partnership agreement has a stated governing law, and such governing law is a province or territory of Canada, then the province of the stated governing law|
|Corporation, Limited Partnership and Organization (incorporated/continued/amalgamated/organized under provincial orterritorial law)||Province or territory where the incorporation, continuance, amalgamation or other organization occurred|
|Corporation (incorporated/continued/amalgamated under federal law)||The jurisdiction where the registered office or head office of the debtor is located|
|Registered organization that is organized under the law of a U.S. State1||U.S. State where the organization is organized|
|If none of the above apply||The jurisdiction where the chief executive office of the debtor is located|
The amendments include transitional rules, the most significant of which are:
- a secured party may rely on the old rules when amending, renewing or extending a security agreement that was entered into before December 31, 2015, so long as the amended security agreement does not include additional collateral;
- a security interest that was perfected under the old rules will continue as perfected until the earlier of the day registration expires or December 31, 2020; and
- a security interest perfected under the old rules will be deemed continuously perfected where steps are taken to register under the new rules before December 31, 2020.
Until other provinces change their conflict of laws rules to align with Ontario's new rules, secured parties may have to register their security interests in multiple jurisdictions. For example, for the Intangible and Mobile Collateral of a British Columbia-formed corporation that has its sole place of business in Ontario, the new rules under the Ontario PPSA state that British Columbia law governs the perfection of a security interest in that collateral and accordingly, a secured party should register under the British Columbia PPSA. However, the current rules under the British Columbia PPSA state that Ontario law governs the perfection of a security interest in that collateral and accordingly, a secured party should register under the Ontario PPSA. In cases such as this, a secured party should register under both the Ontario and British Columbia regimes in order to protect its security interest.
No other provinces have announced that they will follow the changes made to the Ontario PPSA but the expectation is that some provinces will do so in the coming months.
The following are a few key action items for secured parties:
- Secured parties should use the time before December 31, 2015 to familiarize themselves with the amendments to the PPSA. Following December 31, 2015, all security interests must be perfected in accordance with the new rules.
- Existing security interests that may extend beyond December 31, 2020, must be reviewed to ensure they are registered in the appropriate jurisdiction under the new rules.
- Following December 31, 2015, in respect of Intangible and Mobile Collateral, searches must be conducted by considering both the old and the new rules. In other words, secured parties must search in all jurisdictions where the debtor is "located" under the old rules and where the debtor is "located" under the new rules.
1. There are additional rules addressing registered organizations that are organized under the laws of the United States as well as trusts.
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.