As many secured lenders and their counsel head out for their New Year’s Eve celebrations this year, some will also be celebrating the proclamation of some long-awaited new rules for Ontario PPSA1 registrations. 

Back in 2006 under the Modernization Act2, proposed amendments were made to several acts including the Ontario PPSA, but not all of the proposed amendments were brought into force at that time. Many were left until a later date to be proclaimed by the Lieutenant Governor, including the PPSA “location of debtor” rules. It was originally intended that other PPSA provinces would follow suit and propose similar amendments to their statutes, and the delay in proclamation would ensure the PPSA legislation was harmonized between the common law provinces. However, this simply did not happen and Ontario has decided to be the first province to implement these new location of debtor rules which will come into force on Dec. 31, 2015.

When in force, these new ‘location of debtor’ provisions will change the determination of the law governing the validity, perfection and priority for certain types of collateral described in s. 7(1) PPSA, including intangibles (accounts, securities entitlements, intellectual property) and mobile goods collateral.3 Identifying the debtor’s location is essential for determining where to register a PPSA financing statement and where PPSA searches must be completed to identify potential competing claims.

Although very technical in nature, the amended rules are clearer and are based on the jurisdiction where a corporate debtor is incorporated or organized. Under the existing laws, secured parties had to identify where the debtor’s “chief executive office” was located whenever the debtor had more than one place of business. As “chief executive office” is not a defined term within the Ontario PPSA, many secured parties have ended up registering in every jurisdiction where the chief executive office might be located to be cautious. The new rules also specify the locations for all other types of debtors including partnerships, limited partnerships, individuals and trusts.

Transitional provisions have been included in the new “location of debtor” rules under s. 7.2 and s. 7.3 of the Ontario PPSA allowing pre-Dec. 31, 2015 security interests to remain perfected after the proclamation date to ensure there is time for secured parties to adapt to the new scheme. These transitional provisions allow a five-year grace period for existing registrations, and secured parties will have until Dec. 31, 2020 to ensure their existing registration intended to continue after that date comply with the new rules.  Interestingly, the transitional provisions contemplate that existing registrations will need to be refreshed prior to Dec. 31, 2020 even if no change in the determination of the location of debtor has occurred under the existing rules and the new rules.  Secured creditors are encouraged to begin reviewing existing registrations and determining with the assistance of their legal counsel which ones will need to be refreshed during the grace period.

Ultimately, until other PPSA provinces follow suit and implement harmonizing provisions in dealing with debtors with assets in multiple jurisdictions, it will still be advisable to register in the jurisdiction where the principal place of business or the chief executive office is located and where a corporate debtor is incorporated or organized in case those provinces still operating under the old rules do not recognize the validity of a registration based upon the new Ontario rules. There will also be some wrinkles to be worked out in connection with the interpretation of the new rules in determining the jurisdictions in which to conduct searches where a corporation was initially incorporated in one jurisdiction and then continued into another jurisdiction.