In the context of cross-border secured financing transactions involving Canada and the United States, the rules relating to perfection and priority of personal property pledged in favour of a lender or agent are similar. In the U.S., Article 9 of the Uniform Commercial Code governs while each Canadian jurisdiction has its own personal property security regime.

The PPSA is largely based on the UCC framework and the PPSAs of each common law Canadian jurisdiction are generally very similar to each other. There are however, a few key distinctions between the UCC and the PPSA, one of which will be discussed below.

In the context of an all-asset pledge by a debtor in favour of a secured party, one notable difference between the UCC and the PPSA perfection frameworks relates to where registrations need to be made to perfect a security interest in collateral against a debtor. While there are some nuances with respect to the type of collateral in which the security interest has been granted which require analysis beyond the scope of this post, generally speaking, Article 9-301 of the UCC requires that for a debtor, irrespective of whether it is a U.S. or any foreign entity, the local law of the jurisdiction where the debtor is located will govern perfection, the effect of perfection or nonperfection, and the priority of a security interest in the debtor’s collateral pledged in favour of the lender or agent.

In most cases, the debtor’s location for purposes of the UCC will be its jurisdiction of formation or, if such jurisdiction does not have a searchable registry (which is of course not the case for Canada), its location would be deemed to be the District of Columbia. On the other hand, the PPSA approach requires a registration to be made in the location where the collateral is located to perfect against tangible personal property such as goods (which would include items like inventory and equipment). So for example, an Ontario company with operations only in Canada having tangible assets in Manitoba and Alberta would typically require PPSA filings in Manitoba and Alberta in order to perfect the security interest in such collateral. The PPSA framework for perfecting against intangible personal property (such as receivables or intellectual property) takes one of two approaches, depending on what “located” means for purposes of the particular PPSA – registrations need to be made where the entity is formed and where its place of business or chief executive office are located. For purposes of perfecting against our all-asset pledge, another registration would therefore need to be made in Ontario because the company was formed there.

Some PPSA jurisdictions, including Ontario, have caught up with the UCC framework in terms of debtor location. Where it gets interesting is when the chief executive office of a Canadian company is in the U.S. Sometimes the parent of a Canadian company is a U.S. company and the primary business dealings of the Canadian company are run out of the U.S. The chief executive office concept can be challenging to pin down because it is a factual rather than legal determination but let’s assume that it has been determined that our Canadian company’s chief executive office is in the U.S. To cover the bases in terms of conflicts of laws rules, a UCC filing would also need to be made in the relevant U.S. jurisdiction (plus, sometimes a DC filing is also made as a precautionary measure).

To close, in cross-border secured financings it is always important to ensure that it is determined (and represented, if applicable) where the chief executive office of a Canadian company is located.

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