What is Canada’s Personal Property Securities Act?

Nowadays, most lenders require security in whatever form from borrowers. In cases of security over a personal property, the provinces and territories of Canada have enacted Personal Property Securities Act (PPSA). It aims to protect the rights and enforce obligations of both parties involved in the transaction.

What is security in personal property?

A security in a property, also called a security interest or lien, works as a security over a property for the payment or performance of a person’s obligation.

This is usually a secondary contract, which is an offshoot of the primary contract, such as a loan contract or a mortgage.

It is between two parties in a transaction:

• the debtor (borrower)
• the creditor (lender), also called the secured party

The property – or the collateral – that can be used as a security can be:

• personal property (e.g. vehicles, jewelry, machinery and equipment)
• real property (e.g. piece of land, homes, buildings)

When a security is executed, the primary contract becomes “secured”. Its effect is realized after a debtor defaults on their obligation (i.e. has not paid). Here, the secured creditor is prioritized over the collateral, which can be sold to satisfy the debtor’s obligation.

An introduction to Personal Property Securities Act

In Canada, securities over personal properties are governed by the provincial and territorial laws. Each province or territory has enacted its own statutes, commonly called Personal Property Securities Act (PPSA).

These laws cover the creation of security interests, personal properties that can be subject to security interests, and their enforcement. They are in addition to the common law principles that apply to common law provinces, and to the Quebec Civil Code.

What is the purpose of Canada’s Personal Property Security Act?

The main purpose of the Personal Property Security Act is to protect the rights of both the debtor and the creditor.

These laws provide certain safeguards that must be followed when enforcing the security interest. This is also related to the registration of security interests before the proper government agency.

Most importantly, these laws provide for a statutory process to be used if there are conflicting or competing security interests.

This happens if a debtor has many creditors who will compete over the debtor’s properties, or if numerous interests were executed by a debtor over a similar property.

How does the Personal Property Securities Act in Canada work?

In most factors, the respective Personal Property Securities Act of each province and territory are somehow similar with each other. But for the specific differences of one PPSA from another, it’s best to consult a lawyer.

Here are some highlights of Canada’s PPSA:

Scope and application

The PPSA applies only to transactions that secure a debt or an obligation of a person.

For instance, Alberta’s PPSA applies to transactions that create a security interest, regardless of its form and the person who has legal title to the collateral.

Alberta’s PPSA also applies to:

Some transactions are still covered by the PPSA even if they do not secure payment or performance of an obligation, if stated expressly by the PPSA.

Know more about Alberta’s PPSA with this video:

Consult with best corporate finance and securities lawyer in Alberta as ranked by Lexpert if have more questions regarding Alberta’s PPSA.

Creating and perfecting security interests

Creation and perfection of security interests are distinct from each other:

• creation: when the debtor and creditor have consented to a security agreement
• perfection: done after its registration with the government

Registration system

Perfecting a security interest can only be achieved after it is registered with the proper government agency in the province or territory.

Each of these provinces or territories has a notice-based registration system of security interests through its own Personal Property Security Registry (PPSR).

After registration, persons searching within the registry will be notified of the security interests created in a specific personal property.

There’s a process that must be followed as outlined by each province and territory, including the proper forms to be accomplished.

For example, under Ontario’s PPSA, financing statements and financing change statements related to security agreements must be registered with its PPSR system.

These differences of these statements are as follows:

Financing statement:

This happens when:

• an original security agreement is first registered or
• one or more security agreements are entered by the same parties

Financing change statement:

This takes place in one of these scenarios:

• when the security agreement or collateral is transferred or assigned
• when the debtor’s name has changed
• when the financing statement is renewed
• when the financing statement is corrected or amended

This must be done electronically by the creditor. They must give the debtor a copy of the details of the registration within 30 days of the registration.

After the registration, the details of these statements are made available to the public, but subject to payment before a search is allowed.

The information is available during the period of registration, which the creditor must provide during registration of the financing statement:

• business loans: can be registered for a perpetual period or for up to 25 years
• consumer loans: can be registered for up to five (5) years

Discharging security interests

Discharging a security interest means that the debtor’s personal property is released from the security interest. For example, a security interest is discharged after the debtor has paid the creditor.

The process of discharging the security interest is also provided in a provincial or territorial Personal Property Securities Act.

By way of illustration, British Columbia’s PPSA states that a security interest must be discharged if the:

• debtor has performed their obligations under the security agreement; or
• creditor has released all or part of the collateral; or
• the collateral described in the financing statement is not the collateral in the security agreement; or
• debtor and creditor have no security agreement between them

In any of these cases, the debtor may demand the creditor to discharge the security interest or to amend the registration to reflect the correct information.

Making the Personal Property Securities Act work for you

The Personal Property Securities Act protects both borrowers and lenders, outlining clear steps for creating, perfecting, and discharging security interests. While specific details may vary across provinces and territories, the core principles of the act ensure transparency and fairness in these transactions.

If you have questions about the Personal Property Securities Act or how it applies, consult with a lawyer specializing in corporate finance and securities law.