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Asset classes used as collateral for security

Real estate

Can security be granted over real estate? If so, what are the most common forms of security granted over real estate and what is the procedure?

In Canada, security can be granted over real estate. Security will commonly consist of a mortgage and a general assignment of rents and leases (or an immovable hypothec if the property is located in Quebec) to be registered against title to the real property in the applicable land registry office, as well as notice of a security interest against the borrower in the applicable personal property registry office pursuant to a general security agreement or movable hypothec in Quebec.

Machinery and equipment

Can security be granted over machinery and equipment? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Security over machinery, equipment and other types of goods such as inventory may be granted pursuant to a security agreement that charges this limited category of collateral or, commonly, may be included in a broader grant of security over all present and after-acquired personal property of the debtor (see “Security ‒ general” above with respect to security agreements and the procedure for taking such security).

Receivables

Can security be granted over receivables? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

In general, security over receivables can be granted pursuant to a security agreement that charges this limited type of collateral or, commonly, may be included in a broader grant of security over all present and after-acquired personal property of the debtor (see “Security ‒ general” above with respect to security agreements and the procedure for taking such security).

Due to legislation at the federal level and in some provincial jurisdictions, security over debts due from some governmental bodies may either not be obtainable or may require additional specific steps in accordance with such legislation in order to obtain valid security. Contractual limitations on the assignability of an account may also prevent a valid grant of security in such account, although Personal Property Security Act provisions rendering such limitations unenforceable against third parties may operate to permit the security to attach.

Further, an assignment of accounts may not be enforced against any account debtor until such account debtor has been provided with notice of the assignment; until such a time, the account debtor may continue to make payment to the assignor of such account. Outside certain types of loan where the accounts are the primary collateral, this notice tends to be delivered only on contemplation of enforcement on the assignment.  

Financial instruments and cash

Can security be granted over financial instruments? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Security over financial instruments may be granted pursuant to a security agreement that charges this limited category of collateral or, commonly, may be included in a broader grant of security over all present and after-acquired personal property of the debtor (see “Security ‒ general” above with respect to security agreements and the procedure for taking such security).

In addition to perfection by registration, security in investment property ‒ including securities and securities accounts ‒ may be perfected by control (involving physical delivery of share certificates, duly endorsed or tri-party agreements with issuers of uncertificated securities or securities intermediaries), which may give the secured party better priority. Commonly, secured parties may also require that the debtor deliver possession of instruments (eg, letters of credit and chattel paper) in order to best protect their security.

Can security be granted over cash deposits? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Security over accounts due to a debtor with respect to its bank or deposit accounts is granted and perfected in the same manner as other receivables and accounts (see “Receivables” above for the procedure).

In Quebec, security over bank accounts may be made enforceable against third parties (or perfected) by the secured party obtaining control over the account, potentially involving a tri-party agreement with the deposit bank, which may give the secured party better priority.

Intellectual property

Can security be granted over intellectual property? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Security over intellectual property may be granted pursuant to a security agreement that charges this limited category of collateral or, commonly, may be included in a broader grant of security over all present and after-acquired personal property of the debtor (see “Security ‒ general” above with respect to security agreements and the procedure for taking such security).

There is some uncertainty over whether the federal or provincial levels of government have jurisdiction over security in intellectual property, and therefore it can be prudent to register evidence of the security agreement (often a simple one-page confirmation of the grant of security interest pursuant to the security agreement) in the Canadian Intellectual Property Office with respect to intellectual property registered in that office. Given the cost associated with such registration, it is fairly common for lenders to require such registrations only when the intellectual property is material. Registration can take a couple of months to be processed.

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