In the U.S., liens arising from secured transactions are filed pursuant to the Uniform Commercial Code (UCC). In Canada, liens are filed under the Personal Property Security Act (PPSA). The PPSA was drafted based on a 1960’s version of the UCC. The evolution of the UCC over the last five decades has resulted in many differences between the two statutes. This article uses the PPSA of Ontario, as representative of the other provinces, to illustrate those differences.
1. Where to File Rules
Generally, a PPSA lien is registered based upon the location of the collateral, not the location of the debtor. The exception to this rule is for intangible personal property, in which case, the location of the debtor determines the jurisdiction of the registration: principal residence of an individual; governing jurisdiction of a general partnership; province or territory of incorporation or formation of corporation or LLC; and province or territory of head office for a federal corporation.
2. No Paper!
The PPSA registration process is all electronic. There is no paper filing option; nor is there a system allowance for attachments, including security agreements.
3. Variable Registration Period
A PPSA registration does not have a set duration period: the filer can choose the duration and, usually, it lasts for the length of the security interest. The only exception is for consumer goods, which have a maximum registration period of five years (this is true in Ontario, but many other provinces do not make this distinction).
The registration period can be perpetual. The fee for registering a lien under the PPSA is based upon the length of the registration period. The fee for a perpetual registration is set purposely high to discourage its use when the security interest is not actually perpetual. A registration of any duration, except perpetual, can be extended using a change statement.4. “Re-Perfection” of Lapsed Registrations
In the event that a registration erroneously lapses, a new registration can be filed to “re-perfect” the lien. The lien will retain its previous standing in regards to any liens filed after the original registration but before the lapse. The only liens that take priority to the re-perfection lien will be those filed against the debtor and collateral during the lapsed period. The rationale for this practice is that new secured parties could not have known of a lapsed lien that had been removed from the record.
5. Inclusion of Motor Vehicles
The PPSA includes perfection of motor vehicle liens; motor vehicles are classified as tangible personal property. In the U.S., liens against motor vehicles are governed by state title statutes.
Summary of Differences between UCC and PPSA
While serving similar purposes, the Uniform Commercial Code and the Personal Property Security Act differ in several significant ways. The registration jurisdiction for the PPSA is primarily determined by the location of the collateral, not of the debtor, with the exception of intangible personal property. There are no paper PPSA registrations, nor allowance for attachments. Registration periods vary, based upon the length of security interests and can be perpetual; fees are based upon length of the PPSA registration, with perpetual being purposely costly. Lapsed registrations can be “re-perfected” with limited impact on standing. Motor vehicle liens are perfected via PPSA registration.
Consulting an attorney with experience in Canadian commercial law or using a service company with experience in, or access to, the PPSA registration system can greatly increase your success in accurately perfecting your Canadian security interests.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.