Canada: New Legislation Comes Into Effect In Québec As Of January 1, 2009 Regarding Transfers, Pledges And Hypothecs In Securities Pursuant To An Act Respecting The Transfer Of Securities And The Establishment Of Security Entitlements

Last Updated: December 23 2008

The coming into force on January 1, 2009 of An Act respecting the transfer of securities and the establishment of security entitlements (the "Act") represents a significant development in securities legislation. In particular, the Act will have a major impact on security affecting securities.

A Brief History

The Act modernizes legislation that is no longer considered an adequate reflection of current realities in the capital markets. The Act sets out clear rules on the transfer and taking of security in securities, whether these be directly held or, as is increasingly the case, indirectly held. Indirect holding refers to securities being held through one or more securities intermediaries (such as brokers, banks and clearing houses, to name but a few). The Act sets forth a series of rules for the establishment of security entitlements in securities and other financial assets and the legal relationship between the investor or holder of the security entitlement and the intermediary.

The Act is part of a common effort to modernize and harmonize legislation relating to the transfer of securities. In 1994, the United States enacted article 8 of the Uniform Commercial Code which introduced precise rules relating to the direct and indirect holding of securities. In 2004, the Uniform Law Conference of Canada enacted the Uniform Securities Transfer Act as a model law enshrining these concepts. In 2007 and 2008, a majority of Canadian provinces adopted a similar statute and, in January 2009, the Act will bring Québec's regime in line with the other Canadian provinces and the United States.

Control: The New Way to Obtain First Ranking Security

The Act establishes "control" as the means of obtaining first ranking security. By "control" one acquires a valid and enforceable pledge, without any registration requirement, ranking ahead of any other registration. A creditor obtains control of a certificated security by delivering and endorsing the share certificate. The control of an uncertificated security or of a security entitlement is acquired by entering into a control agreement, by which the issuer or the securities intermediary, as the case may be, agrees to comply with instructions from the creditor without the further consent of the investor.

In the case of an uncertificated security, control may also be obtained by becoming the registered holder of the security. It is important to note that the creditor may also obtain control of a security entitlement by becoming its holder, in which case its hypothecation will rank ahead of a hypothec affecting the security entitlement of another creditor who obtained control by way of a control agreement (articles 55, 56 and 113 of the Act and new article 2714.2 of the Civil Code of Québec introduced pursuant to article 136 of the Act).

Significant Effects of the Act on the Taking of Security

Requirements relating to valid pledges

One of the major consequences of the coming into force of the Act is that it will henceforth be impossible to grant "dematerialized" pledges (namely, pledges without physical delivery and holding), unless the pledge affects securities and security entitlements as provided by the Act, in which case the physical delivery requirement may be satisfied by the creditor acquiring control of the securities or the security entitlements in accordance with the Act (articles 135 and 136 of the Act respectively amending article 2702 and introducing article 2714.1 of the Civil Code of Québec). For all other pledges, physical delivery will be necessary. Note, however, that a natural person who does not carry on an enterprise will not benefit from this exception pursuant to the Act and the regulations which are currently in force.

This amendment to the current legislation will have a particular impact on the property which may be hypothecated by a natural person who does not carry on an enterprise. Such property will be limited to property that may be physically delivered and property that may be subject to a hypothec without delivery, namely the property listed in sections 15.01 and 15.02 of the Regulation respecting the register of personal and movable real rights (the "RPMRR Regulation") and which includes, inter alia, certain road vehicles and boats. There is some speculation that a new regulation may be enacted which would broaden the definition of such permitted property to include uncertificated securities as well as security entitlements. Nevertheless, until such a regulation comes into force, it is essential to pay particular attention to pledges granted by natural persons who do not carry on an enterprise, which will be restricted to corporeal (i.e. tangible) movable property that may be subject to physical delivery. Pursuant to the Act, such a pledge is limited to certificated securities which can be physically delivered.

Publication and ranking of hypothecs

It should be noted that the Act will take effect immediately upon its coming into force and its impact on security which is already in place will differ according to the means of publication of the security.

The holder of a hypothec with delivery published in a manner that is not recognised by the Act will need to publish its security in conformity with the Act within a grace period of one year following the coming into force of the Act, failing which the initial publication will cease to have effect upon the expiry of the grace period. This provision will apply, inter alia, to a pledge granted before the coming into force of the Act for which there was no "physical delivery", i.e. where delivery was obtained by way of control. For example, if an enterprise had granted a hypothec with delivery on a claim by giving control of such claim to the creditor, such creditor would have to register the hypothec at the Register of personal and movable real rights (the "RPMRR") prior to January 1, 2010 for the hypothec to remain enforceable following such date. Note that if this hypothec had been granted by a natural person who does not carry on an enterprise, the hypothec could be deemed unenforceable if the current regulation is not expanded prior to the expiry of the grace period as mentioned above since claims are not included in the property that can be hypothecated without delivery by a natural person who does not carry on an enterprise under sections 15.01 and 15.02 of the RPMRR Regulation. We, nonetheless, recommend that every affected creditor register its hypothec at the RPMRR.

With respect to hypothecs registered at the RPMRR (before or after the coming into force of the Act) which affect securities or other financial assets, it is imperative to keep in mind that control, pursuant to the terms of the Act, provides its holder with a rank superior to that of a secured creditor who has not obtained control. Consequently, if a new creditor should obtain control of a security entitlement previously charged under a hypothec simply registered at the RPMRR, its security will rank, as of January 1, 2009, ahead of such prior registered hypothec. It is therefore crucial that creditors holding hypothecs registered at the RPMRR over securities or other financial assets wishing to preserve the priority of their hypothecs see to acquiring "control" of such property as soon as possible (if not already acquired), by way of, as applicable, physical delivery or a control agreement or, alternatively, by becoming the registered holder of the uncertificated security or the holder of the security entitlement.


In conclusion, the Act introduces substantial amendments to the law of security, by limiting the scope of pledges and by favouring control as a means of publication in respect of interests in securities and other financial assets. Hypothecary creditors will hereafter need to ensure that they acquire control over financial assets hypothecated in their favour, at the risk of being out-ranked by competing hypothecary creditors.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
4 Nov 2016, Seminar, Toronto, Canada

Please join us for a complimentary half-day seminar on the following topics:

  • "When “actively employed” is not enough: Employee bonus update", presented by Matthew Curtis and Chelsea Rasmussen
  • "The top 10 labour arbitration cases of the past year", presented by
18 Nov 2016, Seminar, Vancouver, Canada

Ten days following the election, join us for a discussion with Gary Doer, former Canadian Ambassador to the US, and Gordon Giffin, US Ambassador to Canada under Bill Clinton, to discuss how the new President and Congressional makeup will shape US-Canada relations for years to come.

25 Nov 2016, Seminar, Toronto, Canada

On Thursday, September 22, 2016, Dentons hosted a panel discussion about the management of liabilities and risks associated with environmental crises, including potential liabilities for directors and officers and provided insight into risk and liability techniques associated with environmental crisis management.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.