After two decades, the Civil Code of Québec (CCQ) has been simplified to permit an efficient and streamlined manner to grant security in Québec in favour of a representative of one or multiple creditors.

Obligations Secured

Legislative changes which came into effect on April 21, 2015 expand the scope of the obligations that may be secured by a hypothec granted in accordance with Article 2692 CCQ to include any obligation of a legal person (corporation), a partnership (limited or general partnership) or a trustee. Such hypothec is no longer restricted to securing payment of bonds or other titles of indebtedness issued by a trustee, a limited partnership or a legal person. In practice, a Quebec hypothec in favour of a representative of one or more creditors may now be granted to secure any obligation (other than that of an individual).

Consequence

As a result, Quebec hypothecs can now secure the same obligations as those set-out in general security agreements granted elsewhere in Canada. There is no longer any need to issue a bond and subsequently pledge the bond, a practice that evolved in order to satisfy the conditions set out in the original Article 2692 CCQ permitting the grant of security in favour of the person holding the power of attorney of the creditors of a title of indebtedness such as a bond (the "fondé de pouvoir des creanciers"). This structure is still available notwithstanding the legislative change introduced and no changes to existing security are required.

Hypothecary Representative

The "fondé de pouvoir de tous les creanciers" or its English equivalent, the hypothecary representative, acts for all present and future creditors of all obligations secured by a hypothec granted in accordance with Article 2692 CCQ. This revised provision sets out the powers and role of the hypothecary representative who is stated to be the "holder of the hypothec" and capable of binding the creditors towards third persons when exercising its powers. In general, a collateral agent appointed pursuant to the provisions of a credit agreement will, within the scope of its specified powers and duties, serve as the hypothecary representative. The amended CCQ provisions now address the appointment and replacement of the hypothecary representative, however, it is clear that parties have the flexibility to enter into contractual arrangements to govern appointment and replacement specifics.

Notarial Form Retained

As was previously the case, a hypothec granted in accordance with Article 2692 CCQ in favour of a hypothecary representative must be executed before a Quebec notary. If not, the hypothec is void ab initio. This does not however apply to a pledge in favour of a hypothecary representative.

Going Forward

The changes introduced to Article 2692 CCQ will greatly facilitate the taking of security in Quebec by eliminating the need for a cumbersome structure. Clarification concerning the role and powers of the hypothecary representative is also beneficial.