The Current PPSA Regime

Currently, if cash collateral is held in a bank account, the “collateral” is the asset created by the deposit—the debt obligation of the deposit-taking institution. Because such collateral is an “intangible” under the Personal Property Security Act (Ontario) (together with the Personal Property Security Act (Alberta), the “PPSAs”), the only available means of perfection is the registration of a financing statement. Priority relative to other consensual secured creditors is determined by order of registration. Consequently, searches should be conducted against the name of the debtor (and prior names) and subordination agreements, waivers or estoppels may have to be obtained from prior registrants. This process can be a costly one and is often impractical given the large number of registrations against certain debtors.
 

Proposed Amendments

On June 8, 2009, ISDA wrote to the governments of Ontario and Alberta proposing the adoption of legislative provisions similar to those in Article 9 of the Uniform Commercial Code (“UCC”) with respect to cash collateral held in deposit accounts. Under the UCC, a secured party may perfect its security interest in a deposit account if:

While pursuant to Article 9, perfection by control is the only method of perfection recognized, ISDA is recommending that creditors retain the right under the PPSAs to perfect by registration or to use other types of arrangements, such as lock-box arrangements, to protect their interests. 

The Alberta government has requested further submissions from ISDA on the proposed amendments, which are also being considered by the Ontario Bar Association’s Personal Property Security Law Committee. We will continue to monitor the status of, and reaction to, the recommendations.