Unexpected PPSA Complication Revealed by Alberta Court Decision

ESC Blog Post August 7, 2012

 

We have just found out and wanted to notify our readers and customers about some pitfalls of the Personal Property Security Act (PPSA) when it comes to lenders registering security against equipment located outside Ontario, as has been demonstrated by a recent court decision held in Alberta.

When a PPSA in Alberta is registered against equipment, it is a requirement of Alberta PPSR system to include either of the following:

  • Year, Make, Model and VIN of each piece of equipment in the “Serial Collateral Goods” section of the PPSA registration
  • Type and Kind in the “General Collateral” section of the PPSA registration

In the recent decision mentioned above the court upheld that when such information is entered as “Type and Kind” in the General Collateral section, it has to contain sufficient information about the piece of equipment against which the PPSA is being registered that would readily identify it from other similar equipment which is not subject to interest registered in PPSA. This means including such information as make, model, and of course, VIN serial number.

From this follows, as the court stated, that failure to do so may impede not only the priority status which secured lenders enjoy but also the lender’s interest altogether.

These provisions, Cassels Brock LLP advises it its blog post, are relied upon by all Canadian Common Law Provinces (which excludes Quebec), except for Ontario.

Cassels Brock writes:

“In Ontario, when registering a [purchase money security interest] PMSI interest in equipment, it is not mandatory to describe the “type and kind” when using the “general collateral description” on your financing statement. In insolvency situations, the decision not to include the serial number/VIN of your equipment may not impact your equipment PMSI rights as against a trustee or receiver. However, your PMSI interest may be defeated in the context of secured party enforcement proceedings or a sale to a third party purchaser having no notice of your equipment PMSI.”

If you have a PPSA registered in any Canadian Province that requires an amendment to ensure that you or your client lenders are protected, contact your lawyer for legal advice and ESC Corporate Services Ltd. to have your PPSA Amendment registered.

 

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