CORPORATE TRANSACTIONS & COMPLIANCE BLOG

Canadian Due Diligence Search Equivalents

By: Teri Mayor, COGENCY GLOBAL INC. on Wed, Jul 03, 2013

Those who routinely conduct due diligence searches in the United StatesCanada Due Diligence Search are sometimes confused when the need arises to conduct similar searches in Canada. Unfamiliar terminology, different types of liens and the numerous filing offices that can be searched all conspire to make the process seem overly complicated.

In this blog post, we’ll review the nearest Canadian equivalents to the standard U.S. searches you are familiar with along with additional searches that are done in Canada and then we’ll provide more detail on the types of searches that are done in at the provincial and the federal level.

NOTE: Consider searching both the English and French versions of names in Canada as filings are not always cross-referenced.  Searching in only one language may not provide filings made against the name in the other language. 

Standard U.S. Searches and Their Nearest Canadian Equivalents:

  • UCC: Personal Property Security Act (PPSA) search or Register of Personal and Movable Real Rights (RDPRM) search in Quebec
  • Federal Tax Lien:  Federal & Provincial Judgment Search, PPSA, Writ of Execution
  • State Tax Lien:  Federal & Provincial Judgment Search, PPSA, Writ of Execution
  • USDC Pending Suits and Judgments:  Federal Court Search
  • State Level Pending Suits & Judgments: Provincial Court Search (court of general jurisdiction in the appropriate county or district is searched)
  • Judgment Lien:  PPSA and Writ of Execution
  • Fixtures:  In Quebec, Land Registry Search, PPSA search in other provinces.
  • Pending Suits & Judgments, Federal Court:  Federal Court Search
  • Bankruptcy: Office of the Superintendent of Bankruptcy Search

Additional Standard Canadian Searches:

  • Bank Act Search: Consider this additional search as liens under this Act have priority over any subsequent PPSA liens.
  • Bulk Sales Act Search:  (Ontario only) A Bulk Sales Act search can be done to help determine the general financial health of a company and will show whether there are filings made under this Act.

Searches at the Provincial Level: 

PPSA (Personal Property Security Act) Search: 
This search is most like the U.S. UCC search, however, it’s a little broader. In every province, motor vehicle liens are also filed under the PPSA statute. “Crown” liens (similar to our state and federal tax liens) are sometimes registered as PPSAs, but there is no requirement to register crown liens. Judgments can also be registered as PPSAs in some provinces.

The PPSA Act also varies from current U.S. UCC law regarding the filing jurisdiction. If the collateral is intangible, then the location of the debtor determines the filing location (either head office of the corporation, or primary residence of the individual). But, if the collateral is tangible goods, then the location of the property determines the filing location. 

Filers under the PPSA specify a lapse date upon filing and can continue the filing to extend the effective life. It is possible to re-file and maintain original priority after a lapse, usually if the filing is done within a certain period of time. A post-lapse “re-file” does not maintain priority over any interests registered after the lapse date and before the new file date.

Quebec: 
Quebec does not have a PPSA system, rather personal property liens are “hypothecs” or “mortgages” and are filed at the RDPRM - Register of Personal and Movable Real Rights.  Filings at the RDPRM are good for 10 years and the filing can be in French or English.  Filings are made if the debtor is domiciled or has assets in Quebec.  Fixtures are filed at the land registry.

Crown Liens:
These would be the equivalent to Federal and State Tax Liens in the U.S. Not all Crown Liens are required to be registered, but in many cases the standard practice is to register them as PPSAs. Evidence can also be found by searching Judgments, as the “crown” may sometimes first have to obtain a judgment before a lien applies. (Consider checking both Federal Court and provincial courts. A Federal Court search should be done to search for federal tax liens. In some cases, the Crown Lien may result in a Writ of Execution. Crown Liens usually have priority over other secured liens, but the rules vary depending on the agency.) 

Provincial Court Search:
Searches of pending litigation and judgments can be done at the court of general jurisdiction.  (Amounts for civil cases vary, but are usually $25,000 and up.)

Writ of Execution: 
A Writ of Execution is something like a judgment lien, but a little more drastic. Generally speaking, a writ gets filed once a party has trouble collecting on a judgment.  Writs of Execution are court orders to sheriffs or bailiffs (term varies depending on the province) to seize the debtor’s property for payment of the debt.  Depending on the province, these can be searched at the Sheriff’s Office, the Land Registry (in Ontario) or the Court (Nova Scotia).

In many cases, a PPSA will be filed first. In Alberta and Nova Scotia, that is a required step before filing for a writ so if no litigation registrations appear on the PPSA search for these two provinces, there may be  no need to do an additional Writ of Execution search.

Land Registry: 
In Quebec, fixtures are filed at the land registry, but in other provinces they are only very rarely filed there and a PPSA filing is done in addition to this filing. Crown Liens on real property may also be registered in the land registry.

Ontario Only:

Bulk Sales Act: Ontario is the only province with a “Bulk Sales Act”. When a company acquires assets outside of the “normal course of business” of another company, the Bulk Sales Act mandates that the buyer ensures that all creditors of the other company are paid off, either by verifying that the seller has paid them or by delivering the proceeds of sale to a trustee. Once the asset has been acquired, the buyer must deliver to the courts an affidavit accompanied by certain other statements* if part of the transaction. (*Statements types include: statement of creditors, statement showing all creditors’ claims have been paid in full or a waiver of immediate payment by a creditor.) These get filed in the offices of the Superior Court for every county or district in which all or part of the stock in bulk is located.  A Bulk Sales Act search is done to help determine the general financial health of a company and will show whether there are any of these filings on a particular company.

Searches at the Federal Level:

  • Federal Court Search: A Federal Court search should be done whenever a federal tax lien search is needed (Crown Liens) as well as for pending suits and judgments at the federal level. The Canadian Revenue Agency first brings suit in Federal Court before filing a PPSA or writ of execution.  A Federal Court search will show potential or actual Crown Liens even if a PPSA or Writ of Execution has not been registered.
  • Bankruptcy Search: Canada’s central Bankruptcy office, The Office of the Superintendant of Bankruptcy, may be searched to find individuals or businesses that have declared bankruptcy or filed a proposal and businesses that have filed under the Companies Creditors Arrangements Act. 
  • Bank Act Searches:  In Canada, consider obtaining a Bank Act search as liens under this Act have priority over any subsequent PPSA liens. Canadian banks may lend money to manufacturers on their goods and inventories. Under the Bank Act, the borrower must sign a particular document that provides the bank the first preferential lien on the goods or equipment. The Bank then registers a 'Notice of Intention' to take the goods as security to perfect its security interest.  A 'Bank Act Search' determines if a company or individual is under this type of agreement with their bank.

As you can see, due diligence searching in Canada differs in some significant ways from the typical searches done in the United States. Being aware of the different types of Canadian liens and where they are filed will help to ensure that the adverse liens you want to know about are discovered.

 

This article is for informational purposes only. You may want to seek local counsel should you have specific questions. These guidelines should not be relied upon as legal advice. 

Topics: International Secured Transactions