At Banking and Financial Services Law, we have posted a couple of entries regarding recent amendments to the Personal Property Security Act (Ontario) (PPSA). One related to the effect of collateral classifications on a financing statement. The other related to an extension of the time period for perfecting a purchase-money security interest ("PMSI") in collateral that is not inventory.
There are two other amendments to the PPSA that were made in 2011. They propose to correct inadvertent repeals of two portions of the PPSA.
The first is a correction to the definition of “purchase-money security interest” (PMSI) in section 1(1). When the Act was amended on January 1, 2007 to reflect changes required by the Securities Transfer Act, 2006 (Ontario), the exclusion of transactions by sale and lease back to the seller was accidentally dropped. It has now been reinserted. Sale-lease backs are excluded from the PMSI definition because, typically, sale-lease backs do not involve the debtor acquiring new assets, which is the objective of a PMSI. This amendment is deemed to have come into force as of January 1, 2007.
The other amendment relates to two subsections that were repealed under the former Bill 152 on August 1, 2007. Under the current PPSA, a secured party must select at least one “check-the-box” collateral classification when registering a financing statement. Collateral descriptions are optional. Eventually, we expect the collateral classification system will be dropped from the Ontario PPSA and collateral descriptions will be mandatory. This will reflect the approach in other Canadian provinces. The repealed sections addressed situations where the secured party failed to use a description to limit the scope of a collateral classification where the collateral did not constitute all of the debtor’s assets in the particular class. Those sections won’t be necessary if collateral classifications are no longer used, but the repeal was made too soon. New PPSA subsections 56(2.2) and (2.3) provide the means for a debtor to require a secured party to remove or limit a collateral classification where applicable. They are deemed to be in force as of August 1, 2007.