Possible Changes to the Canadian Personal Property Security Acts 2000

Section 29 – Security Interests in Returned, Seized or Repossessed Goods

29.(3) Where a sale or lease of goods creates an account or chattel paper, and:

(a) the account or chattel paper is transferred to a secured party; and

(b) the goods are returned to, seized or repossessed by the debtor or by the transferee of the chattel paper;

the transferee of the account or chattel paper has a security interest in the goods that attaches when the goods are returned, seized or repossessed.

29.(4) A security interest in goods that arises pursuant to subsection (3) is perfected if the security interest in the account or chattel paper was perfected at the time of the return, seize or repossession, but becomes unperfected on the expiry of 15 days after the return, seizure or repossession unless the transferee registers a financing statement relating to the security interest or takes possession of the goods by seizure, repossession or otherwise before the expiration of that period.

29.(5) A security interest in goods that a transferee of an account has pursuant to subsection (3) is subordinate to a perfected security interest arising pursuant to subsection (1) and to a security interest of a transferee of chattel paper arising pursuant to subsection (3).

29.(6) Subject to subsection (4), a A security interest in goods that a transferee of chattel paper has pursuant to subsection (3) has priority over:

(a) a security interest in goods that reattaches pursuant to subsection (1); and

(b) a security interest in goods as after-acquired property that attaches on the return, seizure or repossession of the goods;

if the transferee of the chattel paper would have priority pursuant to subsection 31(7) as to the chattel paper over an interest in the chattel paper claimed by the holder of the security interest in the goods.

29.(7) A security interest in goods given by a buyer or lessee of the goods mentioned in subsection (1) that attaches while the goods are in the possession of the buyer, lessee or debtor and that is perfected when before the goods are returned, seized or repossessed has priority over a security interest in the goods arising pursuant to this section subsection (1) and, subject to subsection (4), has priority over a security interest that arises pursuant to subsection (3) only if it has priority over the security interest that is a component of the chattel paper transferred to the transferee referred to in subsection (3).

COMMENT

1. It is proposed that the references to accounts be removed from section 29. Under the section, an accounts financier is given a security interest in returned or repossessed goods where the original sale or lease of the goods resulted in an account. This feature of section 29 does not reflect commercial practice. Accounts financiers do not rely on having a security interest in such goods. The deletion of accounts financing from this provision would therefore reduce its complexity without significant commercial prejudice.

1. The suggested changes to subsection (6) are designed to remove an ambiguity in the current wording as illustrated by the following scenario. Assume that SP1 is a wholesale financer with a security interest in the goods sold under the chattel paper transaction. SP2 is the transferee of the chattel paper. When the goods are returned or repossessed, both SP1 and SP2 have a security interest in the goods. SP2 has priority over SP1 as a result of the current subsection (6). What is not clear is whether this priority extends beyond the 15 day period referred to in subsection (4) if SP2 does not perfect its security interest in the returned goods before the expiry of that period. There is a good argument that it does. If this is so, there is potential for a circular priority problem should the debtor become a bankrupt after the expiry of the 15 day period. If SP1 perfects its interest, SP1 has priority over the trustee. However, since SP2's security interest in the goods is unperfected, the trustee has priority over SP2. Since SP2 has priority over SP1, a circularity of priorities exists. While circular priority problems cannot be eliminated completely, they should be avoided when possible. The purpose of the proposed changed is to do this. It would put SP2 in the same position as any other secured party who is given priority based on temporary perfection which, however, is lost when another method of perfection is not employed before the period of temporary perfection. See, for example, section 28(3). Any problems that this approach creates for chattel paper purchasers can be addressed by registering a security interest in the goods involved when the chattel paper is purchased.

Next Annual Meeting

2018 Conference (Centennial)

Delta Hotel

Québec City, QC

August 12 - 16, 2018