The Regulation to amend the Regulation respecting the register of personal and movable real rights (Québec) (the "Regulation") was adopted on January 14, 2009 and came into force on January 16, 2009. It amends section 15.02 of the Regulation respecting the register of personal and movable real rights (Québec) (the "RPMRR Regulation") to broaden the definition of movable property which may be hypothecated without delivery by a natural person who does not carry on an enterprise to include, amongst other property, securities, security entitlements, claims, rights resulting from an insurance contract and intellectual property rights, but excluding in all cases property constituting a registered retirement savings plan, a registered retirement income fund, a registered education savings plan or a registered disability savings plan within the meaning of the Taxation Act (Québec).

The Québec legislator, by way of the Regulation, has thus addressed what many in the financial services community had considered to be a gap in the recently adopted Act respecting the transfer of securities and the establishment of security entitlements (the "Act") which came into force on January 1, 2009. We refer you to our December 2008 newsletter entitled "New legislation comes into effect in Québec as of January 1, 2009 regarding transfers, pledges and hypothecs in securities pursuant to An Act respecting the transfer of securities and the establishment of security entitlements" for further information on the Act.

Natural persons who do not carry on an enterprise will henceforth be able to grant a pledge (a hypothec with delivery) on uncertificated securities and security entitlements within the meaning of the Act by granting control of such property to the creditor in accordance with the applicable provisions of the Act (cf. new articles 2714.1 and 2714.5 of the Civil Code of Québec introduced pursuant to article 136 of the Act). It will also be possible for natural persons to grant a hypothec on a universality of present or future securities and security entitlements within the meaning of the Act (new article 2684.1 of the Civil Code of Québec introduced pursuant to article 133 of the Act).

The Regulation also settles an issue raised concerning the validity of the publication of "dematerialized" pledges (i.e. pledges constituted without physical delivery and possession) granted prior to the coming into force of the Act by a natural person who does not carry on an enterprise on property not listed in section 15.02 of the RPMRR Regulation as it read before the adoption of the Regulation. As a result of the Regulation, any such pledges granted on property other than uncertificated securities or security entitlements within the meaning of the Act will remain enforceable at the expiration of the grace period set forth in the Act, namely December 31, 2009, provided that they are registered at the Register of personal and movable real rights prior to January 1, 2010 (article 174 of the Act). As for any such pledges on uncertificated securities or security entitlements within the meaning of the Act effected by the creditor obtaining control thereof, these may not be cancelled or declared unenforceable on the grounds that control of the securities or security entitlements, although obtained in conformity with the provisions of the Act, was obtained before January 1, 2009 (article 173 of the Act).

In conclusion, the adoption of the Regulation is welcome news. Natural persons who do not carry on an enterprise will be able to grant a hypothec without delivery on a wider range of movable property. Securities and security entitlements within the meaning of the Act may henceforth also be subject to a hypothec with delivery by way of control in accordance with the Act. Finally, "dematerialized" pledges granted by a natural person before the coming into force of the Act which charge property listed in new section 15.02 of the RPMRR Regulation (other than securities and security entitlements within the meaning of the Act) must be registered at the Register of personal and movable real rights before January 1, 2010 in order to remain enforceable beyond this date.