PPSA “Location of Debtor” Rules – Moving Towards

UniformityAs previously described (PDF) a series of significant amendments to the Personal Property Security Act (Ontario) (the Ontario PPSA) were introduced through the Ministry of Government Services Consumer Protection and Service Modernization Act, 2006 (the Ontario Act) in 2007. Certain provisions of the Ontario Act have yet to be proclaimed into force, including certain amendments that would alter the “location of debtor” rules under the Ontario PPSA.

Current Rules

The Ontario PPSA contains conflict of laws rules which point to the law of the jurisdiction where the debtor is located to determine the validity, perfection, the effect of perfection or non-perfection and the priority of security interests in:

(i)                  intangibles (including accounts),

(ii)                goods that are of a type normally used in more than one jurisdiction (if the goods are equipment or inventory leased or held for lease by a debtor to others– sometimes referred to as mobile goods), and

(iii)               non-possessory security interests in instruments, negotiable documents of title, money and chattel paper.

Under these rules, the location of the debtor is deemed to be located:

(iv)              at the debtor’s place of business if there is one;

(v)                at the debtor’s chief executive office if there is more than one place of business; and

(vi)              otherwise at the debtor’s principal residence.

Determining a debtor’s location for purposes of Ontario PPSA conflict of laws rules is rarely straightforward because the term “chief executive office” is not defined in the Ontario PPSA. Consider the following scenario. A Nova Scotia company has its registered or head office in Toronto, has offices in three other Canadian provinces, including executive offices in Calgary and Regina, and is controlled from the head office of its parent corporation in Missouri. Which of these offices is the “chief executive office”? That question is not easily answered and typically leads to lawyers registering in each jurisdiction where the “chief executive office” could potentially be located. This approach is inefficient and costly.

Amendments

The Ontario Act proposes to amend the conflict of law rules such that the location of a business debtor is no longer defined by reference to the debtor’s place of business or chief executive office. Instead, the location of the debtor will be determined by rules (shaded gray) regarding the debtor’s jurisdiction of incorporation, which are much easier to apply. This would also make the Ontario PPSA rules regarding the location of a debtor substantively similar to those under Article 9 of the Uniform Commercial Code.

As noted above, amendments to “location of debtor” rules in the Ontario PPSA are not yet in force. It seems the Ontario government is waiting for other Canadian jurisdictions to follow suit before proclaiming the “location of debtor” amendments into force; uniformity of rules being the objective. A step toward uniformity was taken on March 31, 2010 when Bill 6 received Royal Assent in the British Columbia Legislature becoming the Finance Statutes Amendment Act, 2010 (the BC Act) (see s.43). The BC Act includes amendments to the Personal Property Security Act (British Columbia) (the B.C. PPSA) that adopt the same “location of debtor” rules as the Ontario PPSA. However as with the “location of debtor” rules in the Ontario Act, the B.C. PPSA amendments will not come into force immediately.

We will continue to provide updates in this space as to the progress of PPSA amendments across the remaining Canadian provinces and territories.

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