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
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.
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