Nova Scotia Personal Property Security Act to Come Into Force
11-Mar-1997
The Nova Scotia Personal Property Security Act ("NSPPSA"), enacted two years ago, comes into force on November 3, 1997. The NSPPSA will replace existing registration systems under the Bills of Sale Act, Conditional Sales Act, Assignment of Book Debts Act and Corporations Securities Registration Act. It will also create new registration requirements where none now exist.
Many of our clients have had experience with a personal property security regime like the NSPPSA. Similar legislation has existed in Ontario for some twenty years. Except for Newfoundland and PEI (each of which are close behind Nova Scotia), Quebec and the Northwest Territories, all Canadian jurisdictions have some form of PPSA. The US Uniform Commercial Code is also similar to the NSPPSA. The NSPPSA is virtually identical to the New Brunswick PPSA in effect since April, 1995 and is generally the same as the "western model" PPSA now in force in western Canada.
The PPSA will apply to all agreements which create a security interest in personal property (i.e most any property other than land). “Security interests” include (I) interests taken or retained in personal property to secure debts or other obligations and (ii) certain interests in personal property not necessarily intended to be by way of security only. The NSPPSA will apply to traditional forms of personal property security such as chattel mortgages, debentures, conditional sale contracts and assignments of book debts and will also apply to “security interests” for which no registration requirement previously existed including:
- a pledge of shares
- an assignment of specific debts
- leases of personal property for more than one year
- a guarantee which contains a postponement of claim
- a commercial consignment agreement
Under the current system it is necessary to register originals or copies of security documents at one or more registry offices in Nova Scotia. The PPSA establishes a Province-wide, electronic "notice" registry system (the "PPS Registry"). It is called a "notice" system because the document which creates the security interest - e.g. a chattel mortgage, debenture, lease or general security agreement - is not registered. Instead, the person claiming a security interest or that person’s agent will enter required information directly into the electronic registry. This required information includes the names and addresses of the parties to the security document, a description of the property being charged (called "Collateral"), and the period of registration selected (anywhere from one year to unlimited).
Although the system is designed to be user-friendly, the information entered must be accurate and comprehensive. For most purposes once the electronic notice (called a "Financing Statement") is filed, so long as the underlying security agreement is otherwise effective, the secured party will have priority as against anyone filing later. After filing a Financing Statement, the filer will receive back a printed Verification Statement detailing registration particulars.
Some key differences between the current personal property security registration regime and the new PPS Registry are as follows:
- One Central PPS Registry: A single Province-wide registry system for all personal property security interests replaces 18 separate county-wide registries.
- Applies to All Personal Property Security: "Notice" of all security interests in personal property must be registered - not merely the 4 or 5 specific types of security previously requiring registration.
- Notice Only: The current document-filing system is replaced with a notice-filing system.
- Electronic: The manual, paper-based registry is replaced with a computerized data base, enabling registration and searching to be conducted electronically on a Province-wide basis. Stewart McKelvey Stirling Scales is now establishing a direct electronic link with the PPS Registry. Many of our larger clients will have their own links.
- Advance Registration: A Financing Statement may be entered before the underlying security is finalized. This permits lenders to establish a priority position during negotiations, allowing more flexibility and more timely release of funds on closing.
- Proceeds: Under current law it is difficult to ensure priority over proceeds of goods charged. Under the NSPPSA a lender can effectively charge not only existing goods but proceeds of their sale or other disposition.
The PPS Registry can be electronically searched by any registrant. If a search turns up notice of a security interest which may affect property in which you are interested, you can make a demand upon the secured party for further information including copies of any security agreements. (You will need to pay for this information: $20 plus 50¢/page.) In most cases the secured party must provide the requested information within 10 days. You will ordinarily be entitled to rely upon the accuracy of the information provided by the secured party even if it later proves to be wrong.
Most priority and enforcement rules are now matters of contract or uncodified common law. In many cases priority rules are uncertain or subject to changing with the times. The NSPPSA provides a strict priorities regime - generally based on the idea that the first to file a Financing Statement wins - and provides detailed (although not comprehensive) rules for enforcement.
Usually when money is loaned to help a borrower buy particular goods the lender expects first ranking security on those goods. Under existing rules a lender who provides inventory or other purchase money financing often has no better security on purchased goods than the holder of a mortgage from the borrower to secure pre-existing debts. This has been particularly troubling to inventory financiers whose choices have been either to use cumbersome conditional sales contracts or to fight out priorities issues with their customers' banks. The problem could be solved to some extent through a priorities agreement but these agreements often cannot be obtained quickly enough to meet the parties’ needs.
Under the NSPPSA a lender who provides purchase money financing can claim a “purchase money security interest” or PMSI if he acts quickly. PMSIs can take priority over all other security interests in the goods given by the same debtor including previously perfected interests. To claim a PMSI in most goods you have 15 days to file from when the collateral is put in the debtor’s possession. In the case of inventory or its proceeds, the PMSI claimant must both file a financing statement and give notice to those who have filed prior financing statements before the inventory is put in the debtor’s possession.
We expect that finance companies and others who currently provide inventory or other purchase money financing to their customers will want to file financing statements, and, if applicable, give notice, as soon as possible after November 3.
While the NSPPSA is of greatest interest to those who lend money or otherwise provide purchase money financing, others will either acquire rights or incur obligations under the NSPPSA:
- Holders of money judgments: Under current law judgment holders can secure their claims against land by recording them at the land registry but have no way to encumber the debtor’s other property. A creditor who holds a money judgment will now be able register notice in the PPS Registry and effectively bind most personal property owned by the debtor in Nova Scotia. For the first time, judgment creditors will have an effective and inexpensive way of registering their judgments against personal property.
- Consignors: Under current law those who place goods on consignment don’t need to make any filing to protect their rights to the consigned goods. Under the NSPPSA anyone who owns goods on “commercial consignment” must file a financing statement. The consignor can claim a PMSI if the steps described above are taken.
- Lessors: Under current law those who lease goods need only file if the lease includes an option to purchase. Under the NSPPSA anyone who leases goods for a term longer than one year must file a financing statement. The lessor can claim a PMSI if appropriate steps are taken.
- Landlords: A landlord with the right to distrain for rent will have priority over all secured creditors, judgment holders, lessors and consignors who have claims on the distrained property except those who have perfected PMSI interests or whose claims are otherwise exempt from registration.
Eventually most interests in personal property will require filings under the NSPPSA. Nothing is automatic and everyone will need to consider what filings are required and when they should be made. Most secured parties have three years to “transition” existing security under the NSPPSA although in some cases it is highly advantageous to file sooner:
- Previously registered documents: Security documents registered under existing statutes are deemed to have been registered under the NSPPSA. Such registrations will remain valid until the earlier of their expiry date (if any) under the existing statute or November 3, 2000. A Financing Statement must be entered in the PPS Registry by such date.
- Unregistered Security: Security interests which did not previously require registration (certain leases, consignments, assignments of receivables) must be entered in the PPS Registry by November 3, 2000.
Two irksome statutes, neither of which serve any obvious purpose at this time, are repealed by the NSPPSA. The Bulk Sales Act, which creates obligations on the seller of a business which can almost never be satisfied, and the Instalment Payment Contracts Act, which required a pointless registration by commercial conditional sellers, are both repealed effective November 3.
- Filing Financing statements: Stewart McKelvey Stirling Scales will have trained lawyers and staff able immediately to make PPS Registry filings on behalf of our clients. We can do registrations both to transition existing filings and to deal with new business. Due to limitations of the public registries we will be unable to provide you a list of your existing filings requiring transition; however we can assist you in compiling your own lists.
- Establishing Filing Procedures: We can help our clients who make their own filings establish procedures to satisfy the requirements of the NSPPSA. The electronic system is unforgiving of even minor errors.
- Advising on Security Documents: While effective existing security documents can be used after the NSPPSA comes into force they may not provide the best possible security available in your circumstances under the NSPPSA. Drawing upon the experiences of our partners in New Brunswick we can advise you how to best adapt your standard documents to take advantage of opportunities under the new regime.
The Government fees payable under the NSPPSA, set by the current Regulations, are:
| |
| Registration (or renewal of registration) of a financing statement for up to 25 years[1] | $20 + $7 per year |
| Registration (or renewal of registration) of a financing statement for an infinite period | $500 |
| Discharging a registration | No charge |
| Amending a single registration | $10 |
| Making a global change to multiple registrations (e.g. where a secured party changes its address) | $500 |
| Searching the PPS Registry | $7 per search |
The information contained in this Client Update is intended for general information only. Please contact any member of our Corporate/Commercial Group in Halifax for additional information:
Suite 900, Purdy’s Wharf Tower One
1959 Upper Water Street
P.O. Box 997
Halifax NS B3J 2X2|
Telephone: 902.420.3200
Facsimile: 902.420.1417
E-mail Address: smss.com
Home Page Address: smss.com
[1] The $20 fee is not payable on renewal of an existing NSPPSA registration. Government authorities are reviewing whether the $20 fee is payable on initial registration under the NSPPSA in respect of security documents registered under pre-NSPPSA statutes.
