By now you may have heard about the upcoming amendments to the Personal Property Security Act (Ontario) (the PPSA) coming into force on December 31, 2015. Our focus is on the practical implications of those changes and how they are going to affect secured parties. These amendments change the rules in Ontario for determining the “location” of a debtor and will have implications for the validity, perfection and priority of security interests perfected by registration under the PPSA.

Under the new PPSA rules, the location of a debtor is determined based on the nature of the debtor in question. Specific rules are set out to address the location of individuals, corporations, partnerships, and other types of debtor, based generally on the information available in public filings. The result of these changes may be to shift the location of existing debtors for the purposes of the PPSA. Accordingly, transition rules have been provided to allow existing secured parties to maintain the perfection and priority of their existing registrations. 

Practical Implications

The introduction of the new PPSA location rules gives rise to several practical implications for secured parties.

  1. Consider whether existing security interests are affected by a change in debtor location.

    Secured parties and their counsel should review their existing security agreements and registrations to determine whether new registrations may be required to maintain perfection under the new rules, especially where the term of lending arrangements extends beyond the 5-year transition period (i.e. loans that extend past December 31, 2020). A secured party which registers in accordance with the new rules before the expiration of the transition period will be deemed to be continuously perfected. 

  2. Keep the new rules in mind for amendments and refinancings.

    Be mindful to avoid simply duplicating prior deals and reusing existing registrations.  Although the transition rules allow a secured party to maintain perfection under the old rules following certain amendments and extensions, each amendment and refinancing should be taken as an opportunity to ensure the security package is in compliance with the new PPSA rules before the expiration of the 5-year transition period. 

  3. Apply the new location rules for new security interests…

    Starting on January 1, 2016, PPSA financing statements should be registered in accordance with the new debtor location rules.

  4. …but consider filing under the old rules - even after December 31, 2015 - to avoid conflicts of laws issues with other provinces.

    As Ontario is the only province to adopt new debtor location rules, the location of the debtor’s chief executive office is still relevant to conflicts of laws analysis when other Canadian provinces are involved. In situations where the location of the debtor under the new Ontario rules and the location of the debtor under PPSA legislation in place in other Canadian provinces is different, registration in accordance with the rules of both jurisdictions may be required.

  5. Conduct PPSA searches under both the old rules and the new rules.

    Although Ontario PPSA filing practice will change after December 31, 2015, existing registrations made under the old Ontario PPSA rules may continue to be effective until December 31, 2020. As a result, for at least the next five years, when conducting searches in the Province of Ontario (and elsewhere) secured parties and their counsel will need to consider both the old and the new rules to ensure that all prior registered security interests are detected.