In a secured financing transaction, such as acquisition financing, a creditor would often protect its interest by creating, attaching and perfecting a security interest by registration in the personal property of the debtor or the guarantor. Once a deal closes, secured creditors would often forget to monitor their registrations to maintain perfection. Post-closing events such as (i) change to debtor name, (ii) transfer or sale of the collateral, or (iii) expiration of registration period are among the common events that may unperfect secured creditor’s security interest if left unattended in Ontario.

Change to debtor’s name

As per Section 48(3) of the Personal Property Securities Act (Ontario), a perfected security interest by registration will become unperfected 30 days after the secured party learns of the name change. In this case, a secured creditor should either register a financing change statement or take possession of the collateral within such 30-day period to maintain perfection. Time will start to run upon the secured creditor first acquires knowledge of such name change, whether by a written notice or deemed knowledge (i.e., debtor changing its letterhead and is observable by the secured creditor).

Transfer or sale of the collateral

Usually, the credit agreement will permit the sale of inventory in the normal course of business, and the buyer will be able to purchase the collateral free and clear of the security interest.

Where the transfer of collateral is not inventory in the ordinary course of business, and the secured creditors provided consent to such transfer with the intention that the buyer will take title subject to the secured creditor’s security interest, then the secured creditor must file a financing change statement within 15 days of such transfer to maintain perfection in the collateral.

If the debtor transferred the collateral without the secured creditor’s consent, then the secured creditor has 30 days to register a financing change statement or take possession of the collateral from the later date of:

  • the transfer, if the secured creditor had prior knowledge of the transfer and if it had the information required to register a financing change statement at the time of the transfer; or
  • the day the secured creditor first learns the information required to register a financing change statement.

Expiration of registration period

Lastly, secured creditors should note that security interest perfected by registration are effective only for the registration period stated in the filed financing statement. Upon expiration of the registration period, unless renewed by filing a financing change statement, security interest will become unperfected. Therefore, secured creditors should have a system in place to remind them to renew the registration prior to the lapse of registration period.

What happens when you fail to meet the deadlines?

If the secured creditor failed to file a financing change statement or take possession of the collateral to maintain perfection or to renew the registration, then it may reperfect its security interest by filing a new financing statement and its security interest will be deemed to have been continuously perfected from the filing of the original financing statement. The only exception is that the reperfected security interest will not be enforceable vis-à-vis any new secured creditor who perfected its security interest during the lapse period.

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