The Ontario government has taken steps to “fix” its inadvertent repeal of former section 46(3) of the Personal Property Security Act (Ontario)(“PPSA”). The repeal occurred on August 1, 2007 as part of former Bill 152 which contained a number of amendments to the PPSA. The repealed section 46(3) provided that a collateral description could limit the scope of a collateral classification in a financing statement to perfect only the collateral described. That section read as follows:
Except with respect to rights to proceeds, where a financing statement or financing change statement sets out a classification of collateral and also contains words that appear to limit the scope of the classification, then, unless otherwise indicated in the financing statement or financing change statement, the secured party may claim a security interest perfected by registration only in the class as limited.
This section was sometimes relied upon by secured lenders when reviewing PPSA search results prior to advancing funds. Lenders could choose not to obtain a subordination of a prior secured party’s security interest, or an acknowledgement of that secured party’s limited collateral, where the scope of that secured party’s PPSA registration was sufficiently limited by a collateral description. This could reduce transaction costs by reducing the number of documents to be obtained from third parties. After this section was repealed in 2007, collateral descriptions could not technically be relied upon to limit the scope of the prior registration.
Schedule 5 of Bill 68 (An Act to promote Ontario as open for business by amending or repealing certain Acts) received first reading on May 17, 2010. It includes an amendment to the PPSA that would add a new section 46(2.1) to reinstate the language excerpted above. Further, the legislation would deem this amendment to have come into force as of August 1, 2007, the date that this provision was inadvertently removed.
This amendment will restore some certainty regarding the effect of a collateral description in a financing statement. It will also reduce transaction costs where prior secured parties choose not to obtain acknowledgements or subordinations due to the limited nature of certain prior registrations.