Every day throughout Ontario, people are borrowing money to buy cars, appliances, equipment, and businesses and they are putting up a variety of personal property as collateral. In order to track these loans and collateral, the Ontario government enacted the Personal Property Security Act (PPSA).
The Act sets up a registry system, the Personal Property Security Registry (PPSR), where information about consumer and business loans and the personal property used as collateral are recorded. The goal of the registry system is to bring simplicity and certainty to commercial transactions by providing a process for determining priorities among secured creditors who have an interest in the same goods.
For creditors to avail themselves of the rights set out in the PPSA, they must take several steps. The two key steps, which will establish priority rights as against third parties, are attachment and perfection.
Attachment
For the creditor’s security interest to attach in the collateral the following must occur:
1. The debtor must sign a security agreement containing a description of the collateral sufficient to identify it, or the creditor must take possession of the collateral.
2. Value/consideration must flow from the creditor to the debtor.
3. The debtor must have some rights in the collateral.
Perfection
To perfect the security interest, the creditor must complete a financing statement and register it in the PPSR within 30 days. Although the financing statement provides only basic information about the parties, the loan and the collateral, it does notify potential lenders and buyers that the creditor has a security interest in the particular property. More detailed information and a copy of the security agreement can then be obtained by contacting the lender.
Priority
Once the security interest has attached and has been perfected, the secured creditor will have priority in this property over
o trade creditors,
o unsecured creditors and
o future secured creditors.
Legal Help
While the personal property security process is relatively straightforward, it can present certain difficulties and a mistake can prove fatal to the creditor’s priority rights. For instance, security agreements are often lengthy and complex documents which may require the assistance of a lawyer. To be effective, the financing statement must be accurately completed. In addition, there are a number of detailed and technical requirements for the actual registration as well as for maintaining that registration.
Our firm has expertise in commercial and business law, including the PPSA. Either Howard Steinberg or Craig Colraine would be happy to assist you.
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