Articles

  Newsletters

  Tax Newsletters

 

Repealing Section 46(3) of the
Ontario Personal Property Security Act

by Glen Lewis
Minden Gross LLP, a member of MERITAS Law Firms Worldwide. 

___________

On August 1, 2007, the Ontario government repealed section 46(3) of the Ontario Personal Property Security Act (the "PPSA") which deals with the registration of financing statements to perfect security interests under the PPSA.

Subsection 46(3) formerly provided that a secured party had the option to provide additional information in the collateral description area of a financing statement (i.e., lines 13 to 15) regarding the collateral of the debtor subject to the registration; however, any description contained in the collateral description area of a financing statement (i.e., lines 13 to 15) could limit the scope of collateral that would be perfected by such financing statement. Accordingly, prior to the repeal of subsection 46(3), if a party searching the registry system discovered a collateral description referring, for example, to only one specific piece of equipment, such a party could rely on the fact that the financing statement would only perfect a security interest in that particular item of equipment and not have to undergo the time and expense of requesting a estoppel letter from the registrant.

With the repeal of subsection 46(3), one can no longer safely assume that additional information provided in the collateral description area of a financing statement will limit the scope of the collateral classifications marked by the secured party. Accordingly, a prospective lender who intends to take a security interest in, or prospective purchaser of, collateral should always send out an estoppel letter to determine the nature and scope of a registrant's security interest in the collateral of a debtor, even if there is a collateral description referring, for example, to only one specific asset.

Some commentators have indicated that the Ontario government's repeal of this section was accidental; however, it does not appear that the government has set a clear timetable to fix this error.