Canada: A Second Chance At Perfection: Saskatchewan's PPSA Amendments And Re-Registration

Last Updated: February 18 2019
Article by David Gerecke and Wuraola Dasylva

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 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.

This post will focus on amendments that address two priority competitions that may arise when a secured party's registration is discharged in error or lapsed and then re-registered.

Currently, the PPSA contains the following provision:

35(7)  Where

(a)           registration of a security interest:

(i)            lapses as a result of a failure to renew the registration; or

(ii)           is discharged without authorization or in error; and

(b)           the secured party registers the security interest not later than 30 days after the lapse or discharge;

the lapse or discharge does not affect the priority status of the  security  interest  in relation to a competing perfected security interest that, immediately prior to the lapse or discharge, had a subordinate priority position, except to the extent that the competing security interest secures advances made or contracted for after the lapse or discharge and prior to the re-registration.

Thus, there are protections for secured parties who have their registrations lapse, or discharged in error or without authorization. Discharge without authorization is, fortunately, less likely to occur in Saskatchewan than some other provinces because most registrations under Saskatchewan's PPSA generate a RIN number, which is essentially a password, which must be provided when amending or discharging a registration, but it can still happen.

There are two important scenarios that are not addressed by section 35(7).  Bill 151 seeks to address those scenarios.  They are as follows:

(a) before the secured party re-registers, the debtor becomes bankrupt, and

(b) before the lapse or discharge, the secured party had priority over an enforcement charge (i.e., a registered writ of execution), and the lapse or discharge of the secured party's registration would give the enforcement charge priority.

In this communiqué, we will explain how Bill 151 will provide additional protection to secured parties whose registrations lapse or are discharged in error or without authorization.

Secured Creditor whose security interest becomes unperfected vs subsequent trustee in bankruptcy: Who has priority?

The integrity of the PPSA's registration system is based on the presumption that a party may rely on a registry search result regarding the presence and priority of security interests against a debtor. The system is designed to be a "one stop shop" for learning about perfected security interests (though Saskatchewan has deliberately prevented any sort of integration with the Bank Act security registry thereby requiring a search of two separate registries)

Where a security interest becomes unperfected due to an inadvertent lapse or discharge, section 35(7), reproduced above, allows the secured party to re-register within 30 days and maintain its priority.

There are, however, parties who interact with security interests but who do not actually rely on the registry.  Those include trustees in bankruptcy.  Section 20(2) of the PPSA provides that a security interest in collateral is not effective against a trustee in bankruptcy if the security interest is unperfected at the date of bankruptcy.  Under the current rules, it does not matter why the security interest is or has become unperfected at such date.

For those not as familiar with PPSA terminology, it is possible to have a security interest but not be perfected.  Perfection by registration is achieved where a secured party both has a security interest in collateral and is properly registered under the PPSA.

The logic behind section 35(7) is that where a secured party re-registers within the 30 days of the inadvertent lapse or discharge and there are no intervening registrations or subsequent registrants have not made any new advances, no one has relied on the registry to their detriment so the secured party who became unperfected may be permitted to re-register and maintain priority without anyone suffering harm.

Under the current PPSA, as a result of Section 20(2) a trustee in bankruptcy would take priority over the secured party who became temporarily unperfected – but since trustees in bankruptcy do not rely on the registry and are not thereby prejudiced by the re-registration of a lapsed or discharged registration there is a disparity in the application of the rules.  Bill 151 seeks to address that disparity by adding the following as subsection 20(2.1)(a):

(2.1)  If registration of a security interest lapses as a result of a failure to renew the registration or is discharged without authorization or in error and the secured party registers the security interest not later than 30 days after the lapse or discharge, the lapse or discharge does not affect the priority status of the security interest that existed before the lapse or discharge in relation to:

(a) a trustee in bankruptcy if the bankruptcy of the debtor occurred after the lapse or discharge and before the re-registration; or

Under the new section 20(2.1)(a) the secured party's priority status will be maintained if it re -registers within 30 days from the date of discharge or lapse. This amendment is specifically with respect to a security interest which lapses and is not renewed or is erroneously discharged. The opportunity afforded by the proposed amendment helps to avoid injustice to a party with a registered security interest in cases where there has been an inadvertent, fraudulent or otherwise unauthorized discharge or lapse of its registration, and recognizes that bankruptcy trustees do not rely on the register such that there is no prejudice where a temporary loss of perfection is corrected.

Priority between a security interest which becomes unperfected vs subsequent enforcement charge

The second situation addressed in section 20(2.1) is where an enforcement charge is already registered against the debtor and a security interest becomes unperfected and then is re-registered.

In Saskatchewan, an enforcement charge is a relatively new creation pursuant to The Enforcement of Money Judgments Act (Saskatchewan).  It replaced writs of execution.  An enforcement charge comes into being when a judgment is registered in Saskatchewan's judgment registry and will be treated as a registered security interest for priority purposes, taking priority over all subsequently registered security interests other than purchase money security interests.

Currently, where a secured party's registration lapses or is discharged and then is re-registered within 30 days, the PPSA has no language that addresses the priority vis a vis an already existing enforcement charge that had been behind the secured party's registration before it became unperfected.   Section 35(7) does not cover that situation.

As with subordinate security interests and trustees in bankruptcy, a subordinate enforcement charge is not prejudiced if the secured party is permitted to correct its temporary loss of perfection by re-registering within 30 days.  The new section 20(2.1) goes on to include the following subsection (b) which immediately follows section 20(2.1)(a) set out above:

(b) an enforcement charge that, immediately before the lapse or discharge, had a subordinate priority position

Pursuant to the new provision, an enforcement charge will receive the same treatment as a subordinate security interest when a prior registered secured party suffers a temporary loss of perfection and then re-registers within 30 days.  This is entirely sensible, as a subordinate security interest and subordinate enforcement charge have similar status, and will not have changed their position in reliance on the registry (the difference being that the holder of an enforcement charge is not a creditor who would be making advances during the intervening period).

Key Takeaway

  The PPSA already contains provisions in section 35(7) that give a secured party the chance to cure an inadvertent lapse or discharge, or unauthorized discharge, by re-registering within 30 days, and thus preserving priority as against other secured parties. It makes little sense that such a re-registration would not maintain priority as against subordinate enforcement charges and trustees in bankruptcy who are appointed in the intervening period.  Bill 151 addresses these scenarios by introducing section 20(2.1).

While these amendments offer secured parties the chance to maintain priority by quickly re-registering, they should not detract from the need to have proper mechanisms in place to ensure continuous perfection. Every secured creditor ought to take prudent measures to renew its registrations before expiry to avoid the need to rely on section 35(7) or the proposed new section 20(2.1).

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
Wuraola Dasylva
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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