Following a panel report from the Minister of Government and Consumer Services, two significant changes to the Ontario Personal Property Security Act (the “PPSA”) came into effect near the end of 2015. These changes centred on two areas: the five-year cap on consumer goods’ registrations and the criteria for determining the location of the debtor.

One of these changes is long overdue and brings Ontario in line with other PPSA jurisdictions. The second will help Ontario lead the provinces and territories towards a US-style modernisation of our statute.  This bulletin will review the key changes that secured creditors need to be aware of and suggest how these changes should be implemented to best protect the interests of secured creditors in the collateral of their debtors.

1. Repealing the five year cap on registrations related to consumer goods collateral

Previously, Ontario was the only jurisdiction in Canada that capped registrations in respect of consumer goods at five years. As many loan arrangements for goods had terms longer than five years, such as motor vehicles, this limitation caused issues for many finance companies and financial institutions offering longer terms.

Effective November 16, 2015, sections 51(5) and (6) of the PPSA were repealed and section 54 was amended, with no transition provisions. Going forward, a financing statement in respect of consumer goods will be like all other financing statements, in that the statement must set out whether the registration in respect of the consumer goods is perpetual or limited to the number of years of its term. Similarly, a financing change statement extending a registration period will have to set out the term of the extension.  Such extensions will now commence from the expiration of the existing registration period (and not from the time of registration, as was the case before November 16, 2015).  However, for consumer goods’ registrations, the requirements remain that the principal amount of the goods and the maturity date must be entered into the financing statement.

Section 54 addresses the registration in the Land Registry office of a notice of a security interest.  The expiration date of such registrations will no longer be limited to the fifth anniversary of the date of registration.  Additionally, the registration or extension notice now must set out an expiration date.

Since there are no transition rules for these changes, if a secured party had erred in effecting a registration against a debtor in respect of consumer goods, before November 16, 2015, and the registration period was for longer than five years, the registration will now be deemed to last for that full term and not be statutorily reduced.  

These changes will allow finance companies and financial institutions across all PPSA jurisdictions to register in respect of consumer goods for time periods that effectively match the loan term.  

2. Location of the debtor rules

Ontario is now the first jurisdiction in Canada to proclaim new rules relating to the location of the debtor.  Although these rules were drafted almost 10 years ago, the province delayed implementation in the hope that other provinces would soon follow suit. Until other PPSA jurisdictions implement similar changes,  registrations may be required in more than one jurisdiction.  These new location of debtor rules are similar to provisions in force in the United States.  

These rules affect the certain classes of collateral described in section 7(1) of the PPSA: 

  1. intangibles (intellectual property, investments, accounts), and
  2. goods that are equipment or inventory leased and normally used in more than one jurisdiction (mobile goods).

These rules also govern registrations in respect of investment property.

The new rules set out how to determine the location of the debtor as opposed to referencing the debtor’s principal place of business, and, if more than one place of business exists, the location of the “chief executive office”. The old provisions required a secured party to subjectively try and analyze the business of the debtor and determine which location of the debtor’s business was its “chief executive office”.

The new rules are more objective. They look to the organizational format of the debtor and what is on the public record. The new rules for all persons are specified in sections 7(3), (4) and (5) and are summarized as follows:

Click here to view table.

3. Transition rules for existing registrations

Due to the nature of these location of debtor changes, transitional rules were also enacted. The new transitional rules provide for a five-year “grace” period for existing registrations. Secured creditors have until December 31, 2020 to file amendments to bring the address of the debtor into line with these new requirements. Essentially, for registrations in respect of intangible and mobile goods, if a registration was effected before December 31, 2015 and the registration will expire before December 31, 2020, the old rules will apply. For registrations made before December 31, 2015, which will expire after December 31, 2020, a new registration has to be effected before December 31, 2020, using the new location of debtor rules. However, due to a concern that the transition rules may be interpreted to provide all registrations that go past December 31, 2020 will lapse, it is being recommended that all registrations made before December 31, 2015 with an expiration date after December 31, 2020 be “re-registered”.

In addition, if an existing registration is in respect of a security agreement that, after December 31, 2015, has been subsequently amended, renewed or extended, to add additional collateral, an analysis has to be undertaken by the secured party to ascertain if the security agreement constitutes a “prior security agreement” and will be entitled to the grace period or not.

For registrations in respect of investment property, similar transitions rules are also set out.

4. Other provinces

Ontario is the only jurisdiction that has proclaimed these new debtor location rules. Other jurisdictions still have the old rules that require that the secured creditor determine where the debtor has its principal place of business or chief executive office.

As a result, for example, if a debtor is incorporated in BC, but has its principal place of business in Ontario, Ontario would require registration in BC, whereas BC would suggest Ontario. A prudent secured party taking a security interest in intangibles, mobile goods or investment property will therefore register in the jurisdiction where the debtor has its registered office, and also where the debtor has its principal place of business. Until there is uniformity in all Canadian PPSA jurisdictions, it will still be necessary to ascertain both where the debtor is constituted and where it carries on business. Hopefully, more provinces and territories will follow Ontario’s lead before December 31, 2020.

5. Going forward

Secured parties need to review their existing registrations in Ontario to ascertain if any new registrations need to be made either in another PPSA jurisdiction or here in Ontario prior to December 31, 2020. In addition, secured parties also need to be aware that until other PPSA jurisdictions implement similar location of debtor rules, that registrations may need to be made in more than one province.