"Location Of The Debtor" Changes Coming To The Personal Property Security Act And Regulations On June 1, 2024



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Several amendments to the Alberta Personal Property Security Act ("PPSA") and the Personal Property Security Regulations ("PPSR") are coming into force on June 1, 2024.
Canada Finance and Banking
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Several amendments to the Alberta Personal Property Security Act ("PPSA") and the Personal Property Security Regulations ("PPSR") are coming into force on June 1, 2024. Some of these amendments are certain to be of great importance to secured parties, including one that changes the rules for determining the "location" of a debtor when registering a security interest in intangibles (such as accounts receivable) and certain other forms of collateral in Alberta's Personal Property Security Registry.

For these types of collateral, the debtor's location determines the jurisdiction in which a security interest must be registered. Prior to these amendments (the "Old Rules"), the rules for determining the location of a debtor that was an artificial entity, such as a corporation, were based on the debtor's place of business, chief executive office (if more than one place of business) or principal residence (if the debtor had no place of business). This caused uncertainty for secured parties as to where to register, since these terms were not defined in the PPSA or PPSR and it isn't always clear where a debtor manages their operations.

Pursuant to the new amendments (the "New Rules"), there are clear rules for determining a debtor's location, depending on its entity type. For a Canadian corporation, for example, a debtor's location is determined based on where the corporation is incorporated, continued, amalgamated or otherwise organized.

This example illustrates the difference between the Old Rules and the New Rules:

123 Corporation is a corporation incorporated under the laws of Alberta. XYZ Bank wishes to register a security interest against 123 Corporation. Under the Old Rules, XYZ Bank would have to determine (a) where 123 Corporation conducted its business; and (b) whether they had only one, none, or multiple place(s) of business. The answers to these questions would determine where registration should take place.

Under the New Rules, the location of 123 Corporation is where the corporation is incorporated, continued, amalgamated or otherwise organized. In this scenario, XYZ Bank would register its security interest against 123 Corporation in Alberta.

It is important to note that there are different laws for different types of collateral. The abovementioned changes, for example, do not generally apply to "goods", such as cars or equipment. If a secured party needs to register a security interest in that type of collateral, it usually will be registered in the jurisdiction where the collateral is located. In other words, if a secured party wants to register a security interest against a tractor that is located in Alberta, even if the debtor is incorporated in Ontario, registration should take place in Alberta.

The New Rules provide for a transition period under which registrations that were considered perfected under the Old Rules but are not considered perfected under the New Rules may maintain continuous perfection by re-registering in the new jurisdiction within a certain time period. For example, if the secured party previously registered their security interest against a debtor in Saskatchewan in accordance with the Old Rules, but the debtor is now located in Alberta pursuant to the New Rules, the amendments provide for a window for the secured party to register in Alberta and maintain its perfected interest. The transition period generally ends on December 31, 2024 (but even sooner for some registrations).

Despite this transition period, however, the law applicable in respect of perfection is determined by applying the debtor location rule above. This results in a potential issue where the new jurisdiction does not have the same location rules as Alberta, and also does not recognize the transition period granted by Alberta law. This could result in a loss of priority for a secured party who correctly registers in the new jurisdiction during the transition period in accordance with Alberta law, but such re-registration falls behind another secured party's newly and subsequently-created security interest.

As a result, it is important that every secured party not only review each of their security interests to determine if new registrations are required in other jurisdictions and accordingly make such registrations, but to the extent possible, that each secured party not wait until close to the expiry of the transition period to do so. In most cases, new registrations should be made as soon as possible, once these amendments come into force on June 1, 2024.

Finally, please note that personal property security legislation is not consistent across all Canadian jurisdictions. Therefore, it is important for secured parties to understand not just these Alberta amendments but also the personal property security legislation for all jurisdictions that may be applicable to their debtors, as registrations in multiple jurisdictions may be required to ensure perfection and priority is maintained.

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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