The Personal Property Securities Act and the changes to the Corporations Act and State Acts have created a new security regime which business is just starting to understand.
Putting aside the mechanics of migration from previous registers and how security interests are registered, searched and discharged, it is critical to understand that the PPSA is not limited by the names of particular transactions and is not restricted to particular industries.
This is reflected in the fact that over 600,000 security interests were registered in the first 60 days after 30 January 2012 in addition to the 6.3 million security interests migrated from existing registers or pre-loaded.
As the PPSA has regard to substance over form and contemplates the registration of security interests not previously registrable it is likely that the first disputes will involve determining priority between competing security interests.
In deciding PPSA disputes title and equitable principles are not relevant.
Once it is determined that the PPSA applies to a security interest, Section 55 PPSA sets out default priority rules.
An indication of how priority may be decided can be obtained from the Canadian case of Bank of Montreal v. Innovation Credit Union, 2010 SCC 47.
James Buist, a Saskatchewan farmer, obtained a loan from Innovation Credit Union. In order to obtain this loan, he provided the Credit Union with a security interest governed by the PPSA in all of his present and after-acquired personal property pursuant to a security agreement dated October 7, 1991. The Credit Union did not register this security interest until June 28, 2004.
The Bank of Montreal, between 1998 and January 2004, took Bank Act security over much of the same property. The farmer, however, did not disclose either the Credit Union’s loans or its security interest and the Bank’s searches of both the PPSA and Bank Act security registries disclosed no prior security interests. After the debtor defaulted, the Bank seized and sold some of his property covered by its security.
The Credit Union brought an application pursuant to the Canadian PPSA seeking a declaration that it had a priority claim over the proceeds of the disposition. The Supreme Court of Canada held that the first-in-time PPSA security interest had priority over the Bank Act security because the Bank acquired no greater interest than the debtor had at the time the Bank Act security was taken. At the time that the Bank of Montreal took its Bank Act security, the debtor had already given the Credit Union a security interest in that collateral under the PPSA. The Supreme Court decided that the Bank’s security interest was therefore subject to the Credit Union’s prior interest, regardless of the fact that the latter was unperfected.
Bright Law can advise you on registration of security interests as well as priority and enforcement issues under the PPSA.
