Possible Changes to the Canadian Personal Property Security Acts 2000

Section 35 – Residual Priority Rules

35.(4) A security interest in goods that are equipment or consumer goods and are of a kind prescribed as serial numbered goods is not registered or perfected by registration for the purposes of subsection (1), (7) or (8) or subsection 34(2) unless a financing statement relating to the security interest and containing a description of the goods by serial number is registered.

35.(6.1) A buyer or lessee takes free from a security interest to the extent that it secures advances, other than advances referred to in subsection (6)(c), made by the secured party with knowledge of the transfer to the buyer or the execution of the lease.

35.(7) Where:

(a) registration of a security interest lapses as a result of a failure to renew the registration or is discharged without authorization or in error; and

(b) the secured party re-registers [or revives its registration] the security interest not later than 30 days after the lapse or discharge;

the lapse or discharge does not affect the priority status of the security interest in relation to:

(c) a competing perfected security interest that, immediately prior to the lapse or discharge, had a subordinate priority position, except to the extent that the competing security interest secures advances made or contracted for after the lapse or discharge and prior to the re-registration.

35.(7.1) Where registration of a security interest lapses as a result of a failure to renew the registration, or is discharged without authorization or in error, the lapse or discharge does not affect the priority status of the security interest in relation to a person mentioned in section 35(7) when the lapse or discharge occurs after the secured party has seized the collateral as provided in section 58(2) or, in the case of an intangible or chattel paper, has taken the measures referred to in section 57(2).

35.(8) Where a debtor transfers an interest in collateral that, at the time of the transfer, is subject to a perfected security interest, that security interest has priority over any other security interest granted by the transferee before the transfer except to the extent that the security interest granted by the transferee secures advances made or contracted for:

(a) after the expiry of 15 days from the day on which the secured party who holds the first mentioned security interest in the transferred collateral has knowledge of the information required to register a financing change statement showing the transferee as the new debtor; and

(b) before the secured party mentioned in clause (a) amends the registration to disclose the name of the transferee as the new debtor or takes possession of the collateral.

35.(10) When two or more incorporated debtors who have given security interests to separate secured parties amalgamate as provided in The Business Corporations Act or any other applicable legislation,

(i) subject to section 51, priority of the security interests with respect to property of the each separate corporation existing at the date of the amalgamation is to be determined as if the amalgamation had not occurred;

(ii) the security interests in after-acquired property of the merged corporation provided for in security agreements with the separate debtors have equal priority to the value of the obligation owing to each secured party at the date of the amalgamation.

35.(11) The priority of future advances made by a secured party after the amalgamation shall be subject to subsection (10)(ii).

35.(12) A perfected security interest given by the debtor or successor in interest of the debtor has priority over a prior security interest given by the debtor that was unperfected when the first mentioned security interest was given by the debtor or successor, whether or not the debtor or successor in interest of the debtor took free from the prior security interest.

COMMENT

1. The proposed addition of a reference to “consumer goods” in section 35(4) is explained above in the comment which relates to the same proposed change in section 30(7).

1. The proposed new section 35(6.1) addresses a matter not settled in the current Act. It is designed to make it clear that a buyer or lessee is not affected by the priority status given to future advances made with knowledge of the transfer to the buyer or execution of the lease.

1. The proposed new section 35(7.1) is designed to deal with the situation in which a registration lapses or is fraudulently or inadvertently discharged after a secured party has begun enforcement measures. There is no good policy reason to require the secured party to maintain registration in order to maintain protection against prior, subordinate interests. Of course, the security could be subordinated to a person acquiring an interest in the collateral after enforcement measures have commenced since, in the case of goods, seizure is not perfection by possession and, in the case of intangibles, notice to the account debtor is not a perfection step.

4. The minor amendment to section 35(8) is designed to remove an ambiguity in the provision,

5. The proposed sections 35(10-(11) are designed to address the issue of priority that arises when two or more corporations which have given security interests in their existing and after-acquired property amalgamate and the "new "corporation acquires property that falls within the collateral description of the security agreements executed by the amalgamating corporations. Under provincial business corporations legislation, the amalgamated corporation is not treated as a new entity but merely a continuation of the corporations involved in the amalgamation. Consequently, there is no solution in corporate law to the issue that arises when all of the secured parties claim priority to the collateral acquired by the "new corporation."

5. Under the proposal, security interests that exist at the date of the amalgamation are subject to section 51 to the extent that the "new" corporation has a corporate name different from the corporations involved in the amalgamation. However, since business corporation law does not treat the new corporation as a different entity, there is no transfer of the collateral of the corporations involved in the amalgamation to the "new corporation."

5. Since collateral acquired by the "new" corporation is notionally caught by the prior security interests given by the corporations involved in the amalgamation, the effect of the proposal is to give the holders of these interests a pro-rated share in collateral. No secured party can affect the share of another secured party by making future advances to the "new corporation."

8. The proposed new section 35(12) is designed to remove any doubt as to the application of the priority structure of section 35(1) in the "two debtor" situation. See generally, Cuming, "Double-Debtor A-B-C-D Problems in Personal Property Security Legislation" (1992), 7 B.F.L.R. 359.

Next Annual Meeting

2017 Conference

Hotel Saskatchewan

Regina, SK

August 13 - 17, 2017
Creative Commons Licence
This work is licensed under a Creative Commons Attribution 2.5 Canada License
L'usage de cette œuvre est autorisé selon les dispositions de la Licence Creative Commons Attribution 2.5 Canada