Networks competing with big firms internationally
- Condominium Group
- Dec 30, 2007
- 4 min read
Updated: Mar 31
Networks competing with big firms internationally
December 31, 2007
For many practitioners the question of where to register personal property security is hardly given any thought at all. However, there may be unintended consequences of not thinking through the issue. To lose security over certain collateral because the question of where to register was not considered is not a situation any lawyer would like to find themselves in.
The question of where to register a security interest in personal property becomes especially crucial if you have a Canadian debtor with assets in the United States or a U.S. debtor with assets in Canada. For the purpose of this article we will refer to Canada other than Quebec. While the law between Quebec and the rest of Canada has to some extent been harmonized from a substantive perspective the form is still quite different.
Prior to the turn of the century, Canadians were quite smug when dealing with Americans in connection with where to register security. Under the old Uniform Commercial Code Chapter 9 (UCC 9) regime in the U.S., a secured party was required to register in each state where a debtor had assets and often in each county as well. This could result in hundreds of registrations to cover all of a debtor’s property. In Canada we only had nine common law provinces and three territories. It made registration a much simpler matter.
In 1998, UCC 9 was amended to radically change the registration system. After the change, a secured party could perfect its security interest against all of a debtor’s assets in the whole of the United States simply by registering in the jurisdiction where the debtor was formed. For example, if the debtor was a Delaware corporation, a registration in Delaware perfected the secured party’s security interest in all of the collateral of the debtor in all of the states of the United States.
Canada was now the laggard in terms of the efficiency of registrations.
With the change in law in the United States a new circular analysis regarding registration came into being. Under the revised U.S. law where a debtor had collateral in the United States but the entity was formed in a jurisdiction which had a similar regime as that of the UCC, registration in that jurisdiction was sufficient to perfect a security interest in collateral in the U.S. Arguably the Personal Property Security Act regime throughout common law Canada was similar to the UCC 9 regime and consequently, under U.S. law, a registration in Ontario was sufficient to perfect a security interest in collateral located in the U.S. if the debtor was an Ontario corporation. However, the Ontario Personal Property Security Act specifically states that you must register in the location of the collateral to perfect a security interest. The Ontario regime is sending the secured party to the United States and the U.S. regime is sending the secured party to Ontario.
While this is an interesting academic exercise the practical result is that where the debtor is Canadian with assets in the U.S. it is common practice to register in the Canadian jurisdiction and the applicable U.S. jurisdiction. Just which is the applicable U.S. jurisdiction is another issue. Under the UCC 9 registration regime a registration in the District of Columbia will perfect a security interest given by a non- U.S. entity throughout the United States. Most Canadian secured parties are not comfortable with that and will insist that you register in each state where the debtor has assets.
Ontario has moved to fix one of the registration conundrums in Canada. In the case of intangible and movable assets the old rule (and still rule in all other common law provinces) was that you register where the chief executive office of the debtor is located. Conveniently “chief executive office” is not defined. As of Jan. 1 the rules in Ontario changed to deal with this (and move one step closer the U.S. registration regime). The new rules determining the location of the debtor (and hence the jurisdiction in which to register in respect of intangibles and movable assets) now refer to the formation of the debtor. In the case of a corporation the jurisdiction of its incorporation shall be the location of the debtor. If the debtor is an Ontario corporation, then the jurisdiction for registration is Ontario. In the case of a Canada corporation it is the location of the registered office that determines location. In the case of a limited partnership it is the jurisdiction where the limited partnership is formed. There are also rules for general partnerships, trusts and other entities. The new location of debtor rules are much clearer to understand under the revised Ontario rules.
As only Ontario has changed the rules there are still situations in which dual registrations may be required. For example, if an Alberta corporation has its principal office in Ontario, the Ontario rules would send the secured party to Alberta for registration. Similarly the Alberta rules would send the secured party to Ontario (chief executive office). As mentioned above, while this is an interesting academic debate the practical solution is to register in both locations.
The question of where a secured party should register to perfect its security interest in the collateral requires more than a fleeting analysis.
