The Personal Property Registry system established by the Personal Property Security Act in each common law province in Canada is an “open” system, meaning that almost anyone can file a financing statement against a debtor describing the collateral subject to a purported security interest, whether or not that security interest in fact exists. And even if a security interest does exist, the collateral might be described by a secured party too broadly in the financing statement. Since there is no gatekeeper vetting the genuineness and accuracy of financing statements, each Personal Property Security Act establishes procedures for debtors to ensure the accuracy of financing statements registered against them, and to amend or discharge any inaccurate registrations. The provisions dealing with these issues in the British Columbia Personal Property Security Act (“BCPPSA”) are typical of the provisions in the other common law provinces.
Section 50 of the BCPPSA regulates when financing statements must be amended or discharged and how debtors, prospective secured lenders and others can deal with improper registrations made against debtors and prospective borrowers. Among other things, that section provides that:
- A secured party must discharge a registration relating exclusively to consumer goods not later than one month after all obligations secured have been performed, and
- A debtor or other person with an interest in property can demand that a secured party:
- discharge a registration if all obligations have been performed or no security agreement exists;
- amend or discharge a registration, as applicable, if a secured party has agreed to release all or part of the collateral described in the financing statement; or
- amend the collateral description in a financing statement to exclude property not subject to the security agreement.
If a secured party fails to act after receiving a demand to amend or discharge a registration, the person giving the demand may, on giving the Registrar of the British Columbia Personal Property Registry satisfactory proof that the demand was given, register a financing change statement amending or discharging the registration. The secured party can prevent that amendment or discharge from being filed if it obtains and registers a court order maintaining the registration.
Just as the Personal Property Registry system is open to the registration of almost any financing statement by a secured party, so too is the system “open” to a debtor to amend or discharge almost any registration against it. That openness creates the potential danger that a secured party’s registration could be discharged or significantly amended if the secured party does not pay close attention to, or adequately deal with, any demand for amendment or discharge from a debtor or other person. With registration of a court order as the only means for a secured party to prevent an improper amendment or discharge, the process is more difficult for a secured party to object to than it is for a debtor or other person to initiate.
While the procedures in section 50 of the BCPPSA could be used by debtors for illegitimate means, they can also be used legitimately for their intended purpose, giving debtors the ability to maintain the accuracy of the registrations against them. For example, a secured party may have inadvertently failed to register a discharge of a financing statement against one debtor, among a group of debtors, who has been released, or may have described collateral in a financing statement too broadly, catching collateral not actually subject to the security interest. Secured parties should have a system in place to adequately respond to these legitimate demands for amendment or discharge of financing statements. Failure to respond could result in non-compliance with the BCPPSA, resulting in liability for deemed damages in the amount of $200, or actual damages if greater. On the positive side for secured parties, section 50 can be used by a new secured lender to require a prospective debtor, which has registrations against it, to have any inappropriate registrations discharged or any overly-broad collateral descriptions amended. In those circumstances, section 50 can be helpful to a new secured lender, giving that lender a means to establish its desired priority position against its prospective debtor.