How Changes to Ontario’s Personal Property Security Act Affect’s Debtors

Where Oh Where Is My Debtor? Recent Changes to the Ontario Personal Property Security Act
Only thing certain in the life is “change”, for good, bad or for nothing but change always comes.  This is the case with the  recent amendments to the Ontario Personal Property Security Act R.S.O. 1990 c.P.10 (the “Ontario PPSA”) that came into force on December 31, 2015.

The changes to the act were suppose to make it easier for for determining the location of debtor but does it really serve this purpose.  Location of where the debtor is based is important in securing debt and calling on any collateral.

Under the Old Rules, Ontario Personal Property Security Act stated that the laws of jurisdiction were based on where the debtor was located, at the place of business. The act sufficiently was enforceable on those who only had one business location.

The problem arouse when the debtor didn’t have a business address, than his principal place of resident would be consider his address.

Or when the debtor had multiple locations, according to the act, businesses with multiple locations, the debtor debtor was deemed to be located at chief executive office.

The main issue was that in the Old Rules the terms “chief executive office” and “principal place of residence” were not defined. There was a loophole of sort when debtor was incorporated in one jurisdiction but had a place of business in another province. The secured parties in these situations had no choice but to register the debt under the personal property security legislation in multiple locations (both provinces).

In 2006, the Province of Ontario decided to amend Ontario PPSA but other provinces didn’t follow.  On December 31, 2015 Ontario’s PPSA came into force.

Since other province didn’t follow, Instead of making things clear, the Games of Thrones has started.

The New Rules

Under the new rules (the “New Rules”), the location of the debtor depends on the type of debtor and on information available in the public records or in the debtor’s constating documents.

What Does It All Mean? A Simple Example of the New Rules

The debtor is a corporation incorporated under the laws of the Province of Alberta with a small office in Edmonton, but with all of its senior management in a Toronto office. The Alberta corporation has granted to the secured party a security interest in all of its accounts receivable from its customers located all across Canada. The Old Rules (based on the location of the chief executive office) required the secured party to register its financing statement and to search against the Alberta corporation under the Ontario PPSA. Under the New Rules (based on the province where the debtor was incorporated), the secured party is only required to register against the Alberta corporation and to search under the personal property security legislation in the Province of Alberta in order to protect its security interest in the Alberta corporation’s accounts receivable. However, for the reason discussed below, the secured party may also want to register and search against the Alberta corporation under the Ontario PPSA.

“Lost in Transition”: The Transitional Rules

What if you are a secured party who has a security agreement that was entered into before December 31, 2015? What if you registered a financing statement against the debtor under the Ontario PPSA before December 31, 2015 with respect to collateral covered by the New Rules, such as accounts receivable? What are you supposed to do in order to protect your security interest in this collateral?

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