The Ontario government introduced Bill 154, the Cutting Unnecessary Red Tape Act, 2017 on the 14th of September. The Bill, which makes amendments to over 125 Ontario public acts, received Royal Assent on November 14, 2017. The amendments are set out under schedules related to the ministry responsible for the acts being amended. Schedule 9 deals with the statutes that fall under the control of the Ministry of Government and Consumer Services and includes amendments to the Personal Property Security Act.

The changes to the Ontario Personal Property Security Act (“OPPSA”) fall into two separate categories. The first relates to the amendments made in 2006 to address the jurisdiction of the debtor (for the purposes of effecting a registration) and considered conflict of law issues. The second category relates to errors in financing statements, whether they are deemed likely or unlikely to mislead. This second category of amendments is directed at registrations in respect of motor vehicles, which currently account for over 75% of the registrations under the OPPSA.

Change of jurisdiction

In 2006, under what was Bill 152, amendments were made to the provisions in the OPPSA which determined the location of the debtor. These changes were made to bring the OPPSA more in line with the US Uniform Commercial Code as well as to deal with the provisions in the new Securities Transfer Act, 2006 which focused on investment property. The amendments were made to address the costs of ascertaining the location of the debtor, particularly where the debtor had more than one place of business in more than one province or territory and considering where to register. The 2006 amendments to sections 7 and 7.1 set out new provisions relating to the location of the debtor, generally relating to its incorporating or organizing jurisdiction as the determining factor for assessing the validity, perfection and priority of security interests in certain types of collateral.

Bill 154 makes changes to subsection 7(2), subsections 7.1(6) and (7), section 7.2 and subsections 7.3(6) and (7) relating to the registration requirements under the OPPSA when a debtor changes jurisdiction. In addition, changes are made to the provisions throughout sections 7.2 and 7.3 to replace the references of Bill 152 to “the day subsection 3(2) of Schedule E to the Ministry of Government Services Consumer Protection and Service Modernization Act, 2006 comes into force” with “December 31, 2015”. These amendments provide certainty in respect of when to effect registrations. Essentially they address when registrations need to be made if a secured party has already registered against a debtor and the debtor is deemed to be located in another jurisdiction by virtue of the changes made solely by Bill 152. The time frame in which the secured party is required to perfect in the “new” location of the debtor is addressed.

Errors in registration of motor vehicles

To become a secured creditor in accordance with the provisions of the OPPSA, a registration must be made against the debtor, setting out certain information prescribed in the Minister’s Order, including the complete and accurate name of the debtor and, if the debtor is an individual, a birthdate. The Minister’s Order also prescribes how to effect a registration against a motor vehicle. Currently under the OPPSA, if a search is to be undertaken to ascertain if there is a registration against a motor vehicle, the search can be made in one of two ways: by debtor name or by vehicle identification number (“VIN”).

There have been numerous court decisions which have considered errors in the name of the debtor. There have also been a couple of decisions which have addressed whether a reasonable searcher of the OPPSA database, to ascertain if a secured party has effected a registration against a motor vehicle, needs to search both the debtor name and the VIN, and whether the registration is valid and enforceable if the VIN is accurate but there is an error in the corporate or individual debtor name.

In a recent 2017 decision in Manitoba, a trustee searched the Manitoba database using the VIN and located the financing statement of the finance company which had registered its interest in the motor vehicle; however, the search against the debtor name did not disclose the registration. The trustee disallowed the claim of the finance company and the Manitoba Court of Queen’s Bench disallowed the appeal of the finance company. The Court held that even though the trustee was subjectively aware of the financing statement, there was a seriously misleading error in the name of the debtor and accordingly the registration was not valid. Addressing this type of decision is the primary reason for this amendment in Bill 154.

Section 46 of the OPPSA currently provides that a financing statement or financing change statement is not invalidated nor is its effect impaired by reason only of an error or omission therein or in its execution or registration unless a reasonable person is likely to be misled materially by the error or omission. To avoid the type of situation noted above and determine what is materially misleading, two new sections have been added to the OPPSA: Section 46.1 will set out when a reasonable person shall be deemed not likely to be materially misled; section 46.2 will set out the converse.

Essentially, under section 46.1, if there is an error in the name of the debtor, if it is not set out as prescribed, or if there is an error in the birthdate, as long as the VIN is correctly set out in the designated place on the financing statement, then in respect of the security interest in the motor vehicle, the reasonable person is not likely to be materially misled.

Conversely and per section 46.2, a reasonable person shall be deemed likely to be misled in respect of the security interest in the motor vehicle if the VIN is not set out or is set out incorrectly or in the wrong location on the financing statement.

Benefits to secured parties

The changes in respect of the correct VIN should result in a significant saving for those who finance, lease and sell motor vehicles in Ontario, provided that their registrations are accurate in respect of the VIN. These secured parties do still need to ensure that they are careful in respect of debtors’ names and birthdates, but this amendment will go a long way to protect their registrations. Searchers will now need to only search VINs to ascertain if a motor vehicle is secured.

Clarification brought on by the changes to the debtor jurisdiction language should also be welcomed by secured parties, who now know when and by what date they must effect a registration in a new jurisdiction if a debtor has changed its location.