Canada: The New Quebec Securities Transfer Legislation Is Now In Force: Should Your Security Be Revisited?

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Financial Services, March 2009

AN ACT RESPECTING THE TRANSFER OF SECURITIES AND THE ESTABLISHMENT OF SECURITY ENTITLEMENTS: REMINDER REGARDING EXISTING SECURITY

One of the goals of the new regulation amending the Regulation respecting the register of personal and movable real rights (the Regulation), in connection with an Act respecting the transfer of securities and the establishment of security entitlements (Quebec) (the Act), is to allow individual debtors not acting in a business context to grant a hypothec on a universality of present and future securities or security entitlements. Given that the Act and the amended Regulation are now in force, we take this opportunity to bring to your attention that certain changes enacted by the Act could jeopardize, in certain situations, the ranking and opposability of hypothecs on securities and security entitlements or other property subject to the amended Regulation granted prior to January 1, 2009, the date of entry into force of the Act. Examples of such situations are:

Existing Hypothecs Without Delivery: as of January 1, 2009, the existing registration of a hypothec without delivery at the Register of Personal and Movable Real Rights, with no adverse entries, is no longer sufficient to ensure priority of rank on securities and security entitlements charged by said hypothec, unless the holder of such hypothec already obtained "control" of the charged securities or security entitlements in a manner recognized by the Act pursuant to its existing documentation. Therefore, going forward, secured parties should consider obtaining "control" of securities and security entitlements of important value on which they have a hypothec in order to avoid the risk of losing their first-ranking position on such property.

Conflict of Law Rules: secured parties should also be aware that the Act sets forth new conflict of laws rules that may affect, going forward, the opposability – the rough equivalent of common law "perfection" – of existing security on securities and security entitlements. Secured parties should, therefore, be mindful of the new conflict of laws rules and ensure that their existing security on securities and security entitlements continues to be opposable in accordance with the Act.

Transitional Provisions: secured parties who obtained hypothecs taken by way of a pledge which became opposable against third persons before January 1, 2009 after being published in a manner not recognized by the new provisions enacted by the Act (for example, hypothecs with delivery on bank account deposits or proceeds of life insurance) should consider whether they have to register their hypothecs at the Register of Personal and Movable Real Rights within the one-year transitional period set forth by the Act in order to preserve the initial opposability date of such hypothecs. In addition, secured parties who obtained hypothecs with delivery from individual debtors on property covered by the amended Regulation between January 1 and January 16, 2009 should review such hypothecs and determine whether a new hypothec and/or registration at the Register of Personal and Movable Real Rights would be appropriate.

The foregoing is only a snapshot of some of the material concepts introduced by the Act. You may find our comments on some other aspects of the Act in our October 2008 Blakes Bulletin on Financial Services: The Quebec Act Respecting the Transfer of Securities and the Establishment of Security Entitlements.

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.