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.

Conclusion

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!

Footnotes

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.

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

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

Authors
David Gerecke
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions