Personal Property Security Act (Ontario) (OPPSA)

The Ontario Personal Property Security Act (OPPSA) (https://www.ontario.ca/laws/statute/90p10) is the provincial act that regulates the creation and registration of security interests in all personal property within Ontario. The OPPSA provides a set of rules to govern the rights of creditors and debtors when personal property is used as collateral to secure payment of debt. It applies to every transaction, in the province of Ontario, where a security interest exists on that property.

If a person buys an asset but needs to borrow against that asset in order to finalize the purchase, that asset will have a security interest. Under the OPPSA there are two main requirements which must be satisfied. The first is ‘attachment’ – the security interest has “attached” to the asset as collateral against the loan. The second is called ‘perfection’ where the attached security interest in the collateral has been registered with the proper authorities within Ontario.

Perfection of security interests in any type of collateral can be achieved by registering a financing statement in accordance with OPPSA. Registrations are normally made by the secured party or its Counsel. A secured party must deliver a copy of the verification of registration statement to the debtor within 30 days of effecting the registration.

It should be noted that any security interest in a collateral asset is based on a first come first serve basis. Effectively, whoever gets to the registration first, that who has the first security interest in that collateral asset. Renewals extending the term of a financing statement may be filed at any time prior to expiry of a financing statement.

A business who has a debt against it might decide to change their name. The challenge is that if the name were to change it will become difficult to track security interest issues and conditions. To deal with this kind of situation, there are rules relating to debtor name changes to ensure that the secured interest continues with the new named entity. This protects the original loan holder and any potential future businesses from extending new credit to this business. The debtor must notify the creditor of the name change and then the creditor has a period of time to re-register the perfection in order to keep the asset collateral priority.

Similar rules apply when changing the location of the collateral asset. Interestingly, a secured party can lose perfection in this situation even if it is not aware that the collateral has been moved. The biggest challenge for businesses is when assets with security interests are bought and sold. When assets are transferred to other parties, there is a question of whether the secured interest is transferred as well. Generally speaking, the sale of inventory to a consumer does not have the secured interest transferred. This would not be practical and would prevent the secured asset from being sold.

However, in many other asset transactions, the collateral will be transferred to the new owner without the lender even knowing, but the new owner will be responsible for the secured interest. For example, you may buy a car for $100 knowing that the lien on the vehicle is for $5,000.00 which is a fair price to pay for that specific vehicle. You are effectively buying the car for a low price but agreeing to pay the debt on behalf of the original debtor.

In these situations, the secured party must file a financing change statement naming the transferee as an additional debtor providing that the transfer is made with the consent of the original secured party.