Law Note - PPSA: General Collateral Descriptions 


Winter 2011 - (InBrief Winter 2011)

InBrief Winter 2011
In August of 2007, Ontario's Personal Property Security Act (the "PPSA") underwent some significant changes.

The authors of those amendments were likely a bit over-zealous and that resulted in the inadvertent repeal of Section 46(3) of the PPSA. That Section provided that words entered into the general collateral description area of a financing statement could limit the scope of collateral that would be perfected by the financing statement.

The unintentional deletion of that section created much uncertainty for secured parties and other users of the PPSA system, since they were no longer able to rely on the inclusion of specific assets in the general collateral description as a limitation on the collateral encompassed by the related security agreement.

Bill 68, entitled "An Act to promote Ontario as open for business by amending or repealing certain Acts," received royal assent on October 25, 2010. Bill 68 amends a number of business-oriented Acts, including the PPSA. In particular, Bill 68 has reinserted the deleted Section 46(3) of the PPSA (which is now Section 46(2.1)). Equally important is the fact that this provision is deemed to have come into force on August 1, 2007 (i.e., the date it was inadvertently repealed).

As a result, the legislative gap has been closed and users of the PPSA system can now rely with confidence on limiting language that is inserted into the general collateral description of a financing statement.

The other provision previously deleted was the exclusion of sale and leaseback transactions from the definition of purchase-money security interest, which occurred when the Securities Transfer Act, 2006 (Ontario) came into force on January 1, 2007.

That error has also been rectified by Bill 68, with retroactive effect to January 1, 2007, so that a sale and leaseback transaction is once again excluded from the definition of purchase-money security interest. The coming into force of Bill 68 puts to rest considerable uncertainty in this area of practice, and for users of the PPSA system, this definitely falls into the category of "better late than never."

This Law Note appeared in the Lang Michener LLP InBrief Winter 2011.