Canada: Saskatchewan's PPSA Amendments – How Will Changes To Conflicts Of Laws Rules Be Implemented? Part 2

Last Updated: January 30 2019
Article by David Gerecke

As we summarized in a recent Financial Services & Insolvency Communiqué, Saskatchewan has introduced Bill 151 (the Bill) which amends The Personal Property Security Act, 1993 (Saskatchewan) (the PPSA or the Act).  Over the coming weeks and months our Saskatchewan Financial Services team will bring you a number of posts to inform you about the coming changes and how they may impact you.

Our last post focused on changes to the rules on conflicts of laws being introduced in the Bill (Part 1).  This post is going to address how these changes will be implemented.

The Transition Rules – What Happens if the Amendments Affect Your Perfection or Priority?

As we noted in Part 1, "transition" is an unhappy word for secured creditors and their lawyers when it comes to legislation.  It means things will change, and one needs to pay very close attention to when and how they will change, or a creditor's security and/or priority may be at risk.

In particular, because the "location of the debtor" rules are changing, some debtors will be have their location changed for PPSA purposes even if the debtor has not itself changed anything about how or where it operates.  The Report1 gives a great example – a debtor incorporated in New Brunswick that has its chief executive office in Ontario would be treated as located in Ontario under the current PPSA's rules.  The new rules in the Bill would, however, deem the debtor to be located in New Brunswick.  Secured parties need time to adapt to these types of changes, and the transition rules are intended to provide that.

Broadly, the transition rules will be as set out below.  There are two different sets of transition rules – one for investment property (the new section 7.3) and one for all other property (the new section 7.2).

Bill 151 contains a typographical error in the definition of "prior security interest" in section 7.2(1)(d) that suggests that section 7.2 will apply to investment property. That is clearly an error because the section governing investment property is section 7.3, so section 7.2 must deal with property that is not investment property. We expect that error to be corrected by a future amendment to the Bill.  The discussion below assumes that the error will be corrected such that section 7.2 will apply only to property that is not investment property.

In the endnotes, we will highlight some of the differences between Bill 151 and the Ontario transition rules.

Transition Rules for Property other than Investment Property

The first set of rules below will apply to property that is not investment property.  In transition provisions, there is always a "before" and "after".  One set of rules will apply to things that happened before an effective date, and another for things that happen after the effective date.  In this case, the effective date will be the date on which section 7.2 comes into force.

The guiding principle, as set out in the Report, is that the previously applicable law continues to apply unless and until it is displaced by a right acquired after a change in a relevant factor, i.e., someone obtains an interest in the collateral after the effective date.

There are certain defined terms that will assist to understand the more detailed explanation of the transition rules (note that we have paraphrased to some extent):

(a) "prior law" will mean the PPSA as it existed immediately before the effective date;

(b) "prior security agreement" will mean:

(i) a security agreement entered into before the effective date; and

(ii) a security agreement that is amended, renewed or extended by an agreement entered into on or after the effective date, except to the extent that collateral has been added that was not described in that security agreement; and2

(c) "prior security interest" will mean a security interest in property that is not investment property arising pursuant to a prior security agreement (note that we again are assuming that the typographical error will be corrected).

With those defined terms in mind, the rules under Bill 151 for property other than investment property will be as set out below.  There are many cross-references in the provisions so we have attempted to simplify the approach taken by the drafters.  To assist our readers, we also have simplified terminology.  Where we use the phrase "before the effective date" it means immediately before the effective date.

1. Where one needs to ascertain the location of a debtor to determine the validity of a prior security interest, prior law will apply.

2. If it would continue to be perfected under the new rules, a prior security interest that was perfected under prior law before the effective date will continue to be perfected without the secured party having to take any steps.

3. Where a prior security interest was perfected before the effective date but would not be perfected under the new rules, it will continue to be perfected until December 31, 2020 or (if earlier) the date on which perfection would have ceased under prior law.3

Thus, if the financing statement would have expired before December 31, 2020, prior to that date the secured party would need to take action to ensure that the security interest is perfected in the correct jurisdiction under the new rules before the original financing statement expires.  

If that prior security interest is then perfected in accordance with the new rules before the date on which perfection would cease (i.e., December 31, 2020 or (if earlier) the date on which perfection would have ceased under prior law) then it will be deemed to be continuously perfected back to the date of its original perfection.

Notably, the Report recommends that PPSA jurisdictions consider introducing a special financing statement that refers to a prior registration in another jurisdiction being continued in the new jurisdiction, so searchers are alerted that it is not a "new" registration.  It remains to be seen whether this will happen in Saskatchewan, as that is the type of matter that would normally be addressed in regulations which have not yet been released.

4. With respect to a prior security interest in intangibles, goods of a type normally used in more than one jurisdiction, and electronic chattel paper, prior law will be used to ascertain the location of the debtor to determine what law will govern perfection, the effect of perfection or non-perfection, and priority. The foregoing is subject to the following (all of which apply only if it is necessary to determine the location of the debtor):

(a) Where there is a competition between a secured party with a prior security interest and a party with an interest that is not a security interest (for example, a purchaser of collateral or a trustee in bankruptcy) that arose prior to the effective date, prior law will govern the location of the debtor irrespective of whether the secured party has taken any steps to perfect after the effective date under the new rules.

(b) Where there is a priority competition between any two prior security interests in the same collateral, prior law will govern the location of the debtor.

(c) Prior law will govern the location of the debtor where there is a priority competition between (i) a prior security interest that was not perfected before the effective date but is then perfected properly under the new rules, and (ii) any other security interest in the same collateral.

5. Where the prior security interest is in money or tangible chattel paper or similar property, and it is a non-possessory security interest (i.e., the secured party is not in possession of the money that is the collateral), for determining perfection prior law will govern the location of the debtor. We expect that the main reason that prior law determines only perfection and not priority is that possession of that collateral by another secured party will always give priority to the possessing secured party.

Transition Rules for Investment Property

Bill 151 contains a separate set of transition rules for investment property.  Investment property will be securities, such as shares in companies, whether or not certificates exist, entitlements to securities, and futures contracts.

Section 7.1 of the PPSA, which governs applicable law for investment property, has been changed very little.  The only significant amendment to section 7.1 is that the location of the debtor rules will change.  However, there are limited circumstances where the location of the debtor will govern what law applies, as follows:

(a) perfection of a security interest in investment property by registration;

(b) perfection of a security interest in investment property granted by a broker or securities intermediary where the secured party relies on attachment of the security interest as perfection; and

(c) perfection of a security interest in a futures contract or futures account granted by a futures intermediary where the secured party relies on attachment of the security interest as perfection.

In other situations, it is the location of a certificate, the issuer's jurisdiction, or an intermediary's jurisdiction that will determine perfection and priority.  Those rules in the current PPSA have not been amended.  As such, there is not much to be gained from a detailed review of the transition rules for investment property, except to note that where a prior security interest was perfected in investment property, it will continue to be perfected until the earlier of December 31, 2020 or the date on which perfection would have ceased under prior law.  Prior to the earlier of such dates, the secured party will need to take action to ensure that it continues to be perfected.


Transition rules are never exciting and almost always technical.  They make even lawyers consider career alternatives. If you are not a lawyer and you've read this far, well done!

Even though they are not exciting, transition rules can be critically important for ensuring that parties – in this case, secured parties – do not lose rights that they expect to have.  Secured parties and their lawyers will need to pay close attention to Bill 151's transition rules and ensure that perfection is maintained, which in turn ensures that priority is maintained.

We will be rolling out further posts on Bill 151 over the next while, and tracking progress of the Bill in the legislature, so stay tuned!


1 As we have noted in prior posts on Bill 151, the Report is the highly useful report presented to the Canadian Conference on Personal Property Security Law on Proposals for Changes to the Personal Property Security Acts (the Report), prepared by a working group of the Canadian Conference on Personal Property Security Law (CCPPSL) and ratified at the CCPPSL Annual Meeting in Edmonton, Alberta, 21-23 June 2017

2 The specific language is different than the formulation in Ontario.  The Ontario language states that where additional collateral is added, the security agreement will not be a "prior security agreement" with respect to the additional collateral.  Bill 151 states that a security agreement will not be a "prior security agreement" to the extent that collateral has been added.  We have some uncertainty, as the Ontario language appears to be clearer, but we interpret the two formulations as meaning the same thing, that where collateral is added to a security agreement after the effective date, it will be a "prior security agreement" for the original collateral but not for the collateral added later.  Thus, the same security agreement could have two sets of transition rules applied to different groups of collateral.

3 The Ontario treatment differ somewhat from Bill 151 on this point.  Under the Ontario PPSA, the rules vary depending on whether the change to the debtor's jurisdiction arises from something the debtor did or just by operation of introduction of the amendments.  In Saskatchewan, the rules are the same either way.

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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David Gerecke
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