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Position of creditors

Forms of security

What are the main forms of security over moveable and immoveable property and how are they given legal effect?

In all provinces except Quebec, the most typical form of security over personal property is a general security agreement. Each province has slightly different rules governing the attachment of a security interest to personal property and the perfection of such security interest. Typically, perfection is accomplished by either registration of the security interest or possession. 

The most typical form of security on immovable property is a mortgage. A mortgage must be in writing and registered against title to real property. Each province has a statute governing the validity and enforceability of mortgages registered in its jurisdiction.

The regime in the civil law jurisdiction of Quebec is distinct from the other common law provinces. A hypothec (moveable for personal property and immoveable for real property) is the most typical form of security taken. The personal property provisions in Quebec are set out in the Quebec Civil Code. Similar to the Ontario Personal Property Security Act, the Quebec Civil Code requires a security interest to be registered in Quebec’s registry system. Unlike the Ontario Personal Property Security Act, the Quebec Civil Code permits a security interest to be taken in both tangible and intangible property. An immoveable hypothec is registered on title to real property.

Ranking of creditors

How are creditors’ claims ranked in insolvency proceedings?

Generally, claims in an insolvency proceeding are ranked as follows:

  • Secured claims – these are established through the application of the provincial statute governing security interests (in Ontario, the Personal Property Security Act) or the Quebec Civil Code and are ranked according to the legislative scheme.
  • Preferred claims – these include employee wage arrears and landlord claims for accelerated rent. Preferred claims are ranked in a prescribed order under the Bankruptcy and Insolvency Act.
  • Unsecured claims – these are ranked pari passu with each other.

There are also certain priority claims that rank ahead of all creditors. These claims are typically created through statutory priority or through a court-ordered super priority charge. 

Can this ranking be amended in any way?

Yes. A court order may amend the ranking of creditors’ claims on notice to all creditors.

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