In a previous blog post, we discussed the amendments to the rules under the Ontario Personal Property Security Act (the PPSA) which determine the location of the debtor for certain types of collateral and the jurisdiction for registration.  In this post we explore the transitional rules which will apply to security agreements made before December 31, 2015.

As described in the previous post, as of December 31, 2015 new Ontario debtor location rules (the New Rules) determine the jurisdiction in which a filing must be made for security interests where the underlying collateral consists of:

  • An intangible (e.g., contract rights),
  • Mobile goods (e.g., aircraft), or
  • A non-possessory security interest in instruments, negotiable documents of title, money and chattel paper (e.g., negotiable bills of lading)

(collectively, the Affected Collateral).

Security agreements which create a security interest in Affected Collateral entered into after December 31, 2015 are subject to the New Rules and must be registered in the jurisdiction determined by applying those New Rules.

But, what about security agreements entered into before December 31, 2015 (Pre-Existing Agreements)? In most cases Pre-Existing Agreements that were perfected under the old Ontario debtor location rules (the Old Rules) and that continue into the 5-year transition period are saved by grandfathering provisions which ensure status quo until December 31, 2020 if there is no change to the security interest.  In particular:

  • a security interest that was perfected under the Old Rules will continue to be perfected until the earlier of (a) the day perfection ceases under prior law (for example, if a loan is repaid and the security is discharged) or (b) December 31, 2020; and
  • a security interest perfected under the Old Rules will stay perfected past December 31, 2020 provided that steps are taken to register in the appropriate jurisdiction, as determined by reference to the New Rules, sometime before December 31, 2020.

However, if a security agreement that was entered into before December 31, 2015 is amended it may need to be registered in the debtor’s location as determined under the New Rules.

Another thing to note is that currently only Ontario and Quebec have enacted the New Rules. The old rules remain applicable in all other Canadian jurisdictions.  This may lead to conflicting registration requirements and an obligation to make multiple registrations where Affected Collateral is included in the collateral package. For example, if an Alberta corporation has its chief executive office in Ontario, Ontario’s New Rules require registration in Alberta, while Alberta’s rules (which are similar to Ontario’s Old Rules) will direct you to register in Ontario. This also means that searches will need to be carried out in both potential jurisdictions, not only in respect of security agreements entered in after December 31, 2015 but also in respect of grandfathered security agreements that may or may not have been re-registered under the New Rules.

All in all, the New Rules are valuable for the clarity they bring to the Ontario PPSA regime. Nonetheless, parties to Pre-Existing Agreements are cautioned to watch out for December 31, 2020, a critical date for the final transition to the New Rules.

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