Q: Our back office updated our Ontario PPSA24 search on our borrower and found a registration registered after the bank’s registration where the secured party has checked all the collateral classification boxes as if it holds a general security agreement. Our borrower assures me the registration actually relates to an equipment lease and is a permitted encumbrance under our credit agreement. Is there anything that can be done to make that secured party fix its registration?

A: Yes, the PPSA does provide a remedy for having a registration scaled back in situations where the secured party has been a little over zealous in selecting the collateral classification boxes in filing its PPSA financing statement applicable to its security agreement.  

Under Section 56(2.2) of the PPSA, your borrower can require that other secured party to remove from its financing statement those collateral classifications in which the secured party has not actually acquired a security interest. Specifically, your borrower can deliver a written notice to the secured party demanding that the secured party register a financing change statement to correct the collateral classifications by removing any collateral classification in which the secured party has not acquired a security interest. In this case, the notice sent to the secured party would demand the financing change statement remove “inventory” and “accounts” (and perhaps “motor vehicles”, if applicable) from the registration, so that the amended registration only relates to “equipment” and “other” for typical equipment leases. 

If the secured party fails to register the required financing change statement within 10 days after receiving the written demand, the secured party is required to pay the borrower $500 plus any damages resulting from the failure.

Only your borrower is entitled to send this kind of demand for an amendment. The bank cannot send it independently.

It should be noted that similar remedies are available to debtors under Sections 56(2.1) and 56(2.3) to require a secured party to correct an overly inclusive general collateral description not reflecting the security interest actually granted to it, and to require a secured party to add a general collateral description where one has not previously been included but should have been in order to limit the scope of assets within a particular collateral classification.