As we noted last week, an expert panel recommended important reforms to Ontario’s Personal Property Security Act (PPSA) as part of a broader study into modernizing Ontario business law. The panel proposed amendments to the PPSA permit cash as collateral to be perfected by control as opposed to registration. The panel further recommended allowing cash, when perfected by control, to have priority over competing security interests. These proposed changes are intended to harmonize the Ontario PPSA with Revised Article 9 of the Uniform Commercial Code and provisions of the Civil Code of Quebec governing security interests.
As our readers know we have been strong advocates for these changes. They would significantly facilitate the use of cash as collateral and be of significant benefit to businesses that seek to use cash collateral to finance their operations, particularly their financial market participation, such as derivatives transactions. Priority would not depend on registration but on control. Such amendments could therefore potentially reduce transaction costs and allow other secured creditors to have nearly complete assurance that a security interest in cash perfected by control would have priority over every other security interest that has not been perfected by control.
Hopefully the support of the expert panel will convince the government to introduce these much needed amendments to the PPSA, something that the government promised to do in earlier budgets. For further information, please consult the report of the expert panel.