What types of collateral/security are typically granted to investors in a securitisation in your jurisdiction?

The SPV typically enters into a trust indenture with an indenture trustee. The trust indenture (and, in some cases, other ancillary security documents) typically includes a grant of security in the receivables and any other assets held by the SPV (including any bank accounts) to the indenture trustee on behalf the bondholders (or other relevant investors) and other secured creditors. In provinces other than Quebec, while security is granted by means of a written agreement, no particular document formalities need to be followed. In Quebec, a Quebec law hypothec document must be used and formalities pertaining to the granting of a hypothec must be followed. Where security is taken in bank accounts, the method for taking security depends on the type of account and the transaction structure.


How is the interest of investors in a securitisation in the underlying security perfected in your jurisdiction?

In provinces other than Quebec, perfection of security interests in personal property (including receivables and bank accounts) is achieved by registering a financing statement in the PPSA registry under each province’s PPSA. Each PPSA requires the attachment of a security interest to the collateral for the security interest to be effective. The PPSAs provide that when attachment occurs, for example, a security interest in a receivable would ‘attach’ when the receivable comes into existence, value is given and the grantor has signed a security agreement in which the description is sufficient for the receivables to be identified. In Quebec, registration of the hypothec is required.

A security interest in real property (including a mortgage) is perfected by registering the interest in the applicable provincial land titles registry system. Typically, this would not be done at the time of the closing of the securitisation. Instead, a power of attorney will be granted to the indenture trustee that will allow it to register the interest at a later date in the event that certain trigger events occur. In addition, there are specific statutes, such as the Bills of Exchange Act and the Securities Transfer Act of most provinces, which govern the perfection of assignments and security interests in specific types of assets.

Whether or not these are relevant for a securitisation will depend on the relevant transaction structure and the types and location of assets over which security is being granted. Security interests in certain types of personal property may require the holder of the security interest to take possession or control of the asset. See question 20 regarding notice to obligors.


How do investors enforce their security interest?

The PPSAs in provinces other than Quebec, and the Civil Code of Quebec, contain comprehensive rules dealing with the rights and remedies of secured creditors following default by their debtors. The rights of a secured party include, but are not limited to, the right to take possession of the collateral, the right to retain the collateral or the right to dispose of the collateral. The PPSAs also enumerate the rights and remedies of the debtor. These include, but are not limited to, the right to redeem the collateral or a right to reinstate the security agreement, and the right to receive notice of the creditors’ intentions on default. Each PPSA also specifies that, in addition to the rights and remedies enumerated in the PPSA, the principles of law and equity continue to apply, unless they are inconsistent with the express provisions of the legislation. Despite the differences in terminology, practices and procedures between Quebec and the PPSA provinces, in most cases, substantially the same or similar rights and remedies are available to creditors in Quebec as those that apply in PPSA jurisdictions.

Commingling risk

Is commingling risk relating to collections an issue in your jurisdiction?

Commingling of collections can present an issue in Canadian securitisations. It is not necessary for each specific receivable to be identified in order for sales to be legally effective. However, the receivables purchase agreement must contain a sufficient description for receivables to be identified as belonging to the relevant class or classes of receivables.

It should be noted, though, that this type of identification of receivables classes may affect whether the receivables are considered to be a ‘universality of claims’ under Quebec law (see question 20). As a practical matter, even if the securitisation documents contain a term that the seller is holding collections belonging to the purchaser on behalf of the purchaser, commingling of collections with the seller’s assets can be a risk to the extent that the collections cannot be clearly identified.