The Canadian Bar Insurance Association

Creditors must act fast when collateral changes provinces

Creditors must move quickly once they discover their secured property has moved to another province, Toronto corporate and commercial lawyer Marlin Horst tells

Horst, a partner with the Toronto office of Shibley Righton LLP, says secured parties generally get 60 days to register in a new jurisdiction when property is brought across borders within Canada. However, since creditors will not always know when a move is made, Ontario’s Personal Property Security Act (PPSA) gives them 15 days to register from the time they received notice that their collateral was “brought in” to the province.

In a recent case, an Alberta auto financing company saw its secured claim on a truck denied by a Superior Court judge after the owner declared bankruptcy in Ontario.

The company perfected its interest in the Dodge Ram 1500 back in 2014, by registering under Alberta’s version of the PPSA when the owner bought it new. However, it took 20 days to register the vehicle under Ontario’s PPSA after receiving notice of the owner’s bankruptcy.

“What this decision tells us is that the 15-day period is a hard and fast rule. Once a secured party has knowledge that the property has moved, they need to act right away. You can’t sit and wait,” Horst says. 

Horst says he welcomes the guidance offered by the decision since matters involving motor vehicles account for a significant number of disputes over the location of secured property. The financing company in this case attempted to argue that the vehicle was never “brought in” to Ontario, pointing to the fact that it remained registered in Alberta even after the owner filed for bankruptcy in Ontario.

“It shows an asset can be ‘brought in’ to a province even if the owner doesn’t appear to have complied with the law related to registration of a vehicle,” he says. “I wouldn’t say it’s irrelevant whether or not the vehicle is registered in the new jurisdiction, but this shows that it won’t be conclusive one way or another. It’s a fact-based assessment.”

The confusion over the truck’s place of residence had its roots in the owner’s November 2015 move to Kingston, Ont. He brought the vehicle with him but continued working in Alberta, travelling without it and using a different car while there. After work shifts in Alberta, the owner would return to his new home in Ontario, which was listed as his address in his bankruptcy filings.

When the financing company initially made its claim to the owner’s trustee in bankruptcy, it disallowed the claim.

However, the company was successful on appeal when the province’s registrar in bankruptcy decided the owner’s connection to Ontario was “scant” considering he spent 20 days a month out of the province. Relying on its Alberta registration, the registrar found the vehicle was only located in Kingston as “a matter of convenience” and had not been “brought in” to Ontario at all under the PPSA.

But Ontario Superior Court Justice Stanley Kershman reversed the registrar’s decision, concluding the evidence showed his intention was to move to Ontario, even though he still spent the majority of his time in Alberta.  

“Based on the foregoing, the Court finds that the Vehicle had in fact been ‘brought in’ to Ontario by [the owner] in November 2015,” the judge wrote, before going on to find that the financing company received notice in May 2016 when it found out about his bankruptcy.

“[The company] failed to register a financing statement in Ontario within 15 days after it received notice that the Vehicle had been brought in to Ontario. It thus failed to properly perfect its security interest,” Kershman added.

Horst teaches a course on Ontario’s PPSA at Queen’s University’s law school and says he will add the case to his students’ reading material.

“It’s unusual in that most people when they move to a new jurisdiction, will register their vehicle in the new jurisdiction,” he says.

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