Secured Creditors’ Rights Under Ontario’s Personal Property Security Act

What is the PPSA?

The Personal Property Securities Act (the “PPSA”) is a provincial statue used to regulate and enforce security. It provides the mechanism for managing priority of competing security interest. Most Canadian provinces have their own PPSA rules, regulations and registration requirements.

Objective of the PPSA

Under the PPSA, title or ownership to the collateral is irrelevant unless there are competing interest. One of the objectives of the PPSA is to protect the rights of both creditors and debtors by regularizing secured transactions in personal property and by establishing a province-wide notice based registration system also known as the Personal Property Security Registry (the “PPSR”). The objective of the PPSR is to disclose the existence of a security interest in the identified collateral.

Main PPSA Concepts

The main PPSA concepts are:

1. Consensual security – the PPSA only deals with consensual security meaning that the debtor must grant the creditor an interest in the collateral.
2. Registration – the first creditor to register notice of a security interest in the debtor’s property generally has a first priority security interest in that property which is effective against other secured creditors.
3. Attachment – section 11(1) of the Ontario PPSA states that security interest is not enforceable against a third party unless it is attached. The conditions for attachment of a security interest include:
   • value;
   • the debtor has rights in the collateral or the power to transfer rights in the collateral to the secured creditor; and,
   • the debtor has signed a security agreement as defined by the PPSA. The signed security agreement allows the secured creditor to enforce its security subject to the security agreement containing a description of the collateral sufficient enough for it to be identified.
4. Perfection – perfection can occur either by attachment or registration. If the security is perfected, it has attached and the security becomes enforceable as against the debtor and other third parties claiming an interest in the collateral.

Registration, attachment and perfection in the right jurisdiction will provide the secured creditor with the ability to enforce its security interest against the debtor and against other third parties. To maintain perfection, if a debtor has assets and/or operations in several provinces throughout Canada (i.e. Ontario, Alberta, British Columbia, etc.), the secured creditor should register its security interest in all the provinces in which the debtor has assets and/or operations in order to perfect. Notwithstanding that a secured creditor is not required to attach in order to perfect, both attachment and perfection are required in order to enforce security.

Ontario’s PPSA System

Ontario has a central registry for all securities registered under the Ontario PPSA. Subject to proper and correct registration, a search of the Ontario PPSA will reveal the debtor’s assets that are encumbered. The registry may be accessed by credit card payment for lien registrations and/or lien searches or by opening a deposit account with the Personal Property Security Registry (the “PPSR”) for internet searches. A printed copy of the search results may be obtained from Service Ontario.

Under the Ontario PPSA, there are four searchable criteria under the PPSR:

1. Individual specific: requires the individuals surname, first name, middle initial and birthdate.
2. Individual non-specific: requires the surname and first name.
3. Business debtor: requires the business name.
4. Motor vehicle: requires the vehicle identification number (the “VIN”).

The Ontario PPSA requires all financing statements and financing change statements be registered electronically. The costs of registering a financing statement under the Ontario PPSA is relatively inexpensive. Only one financing statement is required to be registered in order to perfect multiply security interests and the financing statement is only valid for the period of the registration. For instance, if a secured creditor has registered its financing statement for five years, the registration is only valid for five years. If a financing statement is registered by a creditor who has no security agreement allowing for the registration, the debtor can demand that the creditor remove the registration and on application to Court, the Court can order the creditor to remove any registration that is not evidenced by a security agreement.

Section 47(1) of the Ontario PPSA states that a financing change statement may be registered but is not required. Despite the provision of section 47(1), for a secured creditor to maintain its priority position at the expiry of the initial registration period, the secured creditor should register a financing change statement and not a new financing statement as there may be other registrants behind the secured creditor that gain priority as a result of the secured creditor registering a new financing statement resulting in the secured creditor losing its priority ranking.

In the event the debtor transfers the collateral to another party with the consent of the secured creditor, section 48 of the Ontario PPSA provides the secured creditor with a 15 day period to register a financing change statement. Where the debtor transfers the collateral to another party without the consent of the secured creditor, the secured creditor will have 30 days to register a financing change statement pursuant to section 48(2) of the Ontario PPSA.

Since Ontario’s PPSA governs security interest in the locality of the debtor, section 5.7(2) of the Ontario PPSA states that if the debtor relocates, the secured creditor will have 60 days to register its security interest in the new jurisdiction or 15 days on notice being given to the secured creditor that the debtor will be relocating to a new jurisdiction. If the debtor is located outside Canada, the secured creditor is required to follow the laws of the foreign jurisdiction in enforcing its security interest. For this reason, perfecting by registration of the debtor’s property should always done by jurisdiction.

Mary Plahouras is a second year student in the Master of Laws program in Bankruptcy and Insolvency Law at Osgoode Hall Law School, York University and an Estate Manager at our Toronto and Markham locations. To learn more about how MNP Debt can help you, contact our local office at 416-515-3921.