It’s Important to Correctly Identify Your Customer on PPSAs in Ontario
Registering a PPSA in Ontario? Then you know the importance of correctly identifying your customer, drafting & executing a sound Security Agreement and registering the Financing Statement in the correct jurisdiction.
Today we are going to focus on identifying your customer, but I’m going to digress for just a moment to recap the recent changes to Ontario’s PPSA regarding jurisdiction.
Quick Digression
Within the last few years (2015), Ontario enacted its 2006 amendments to the PPSA. The 2006 amendments provided additional clarification on where the PPSA should be registered. Prior to the amendments, jurisdiction was determined based on the location of the debtor’s “chief executive office.” With the enactment of the amendments, jurisdiction was determined by entity type (i.e. if it’s a corporation, limited partnership or organization, the province/territory of organization is the jurisdiction).
“(3)(c) if the debtor is a corporation, a limited partnership or an organization and is incorporated, continued, amalgamated or otherwise organized under a law of a province or territory of Canada that requires the incorporation, continuance, amalgamation or organization to be disclosed in a public record, in that province or territory.”
OK, Back on Track | Your Customer’s Name: English & French
Properly identifying your customer is imperative. Under Article 9, you should identify your customer by the name as it appears on the public organic record. Well, what should you do if your Ontario customer has an English and French name? According to the PPSA, you should identify your debtor by its English and French names.
The Minister’s Order — Personal Property Security Act 1990, section 17 under Particulars of Content of Form, states debtors should be identified by both the English & French name.
17. Despite paragraph 2 of subsection 16 (4), if a corporation has an English form of name and a French form of name:
1. the English form of the name shall be set out on the appropriate line for the name of a business debtor; and
2. the French form of the name shall be set out on another appropriate line for the name of a business debtor
PPSA Registrations Against Corporate Debtors with English/French Names
Jeffrey Alpert, author of “PPSA Registrations Against Corporate Debtors with English/French Names,” recently explored a New Brunswick case. Despite jurisdiction not being Ontario, Alpert felt it provided secured parties a learning opportunity. And he warned that courts seem to have a “zero-tolerance” policy when it comes to debtor identification.
“This case serves as another warning that the Courts usually follow a “zero tolerance” policy when it comes to mistakes in registering against the name of a debtor under the PPSA.”
The very quick synopsis of the case: the creditor did not identify the debtor by the debtor’s name as it appeared on its Articles of Amendment or in the New Brunswick Corporate Affairs Registry Data Base. In fact, it was the omission of a hyphen within the debtor’s name that invalidated the creditor’s security interest.
Judge Stephenson, presiding over the case, is quoted as saying:
“I acknowledge this is a harsh outcome for the inadvertent admission of a dash in a financing statement. However, that outcome is mandated by the operation of Section 43(8) of the PPSA…It must be recognized that avoidance of these type of over-sights is the reason why post-registration confirmatory searches are conducted against debtor names as a matter of usual commercial practice, and included in closing books, to confirm that a search against the correct names will turn up the relevant registrations… Bottom line, the desire for efficiency and certainty, in a system where priority generally turns on time of registration, necessitates accuracy and precision, which in turn gives rises to the need for statutory provisions such as Section 43(8) to address the consequences of non-compliance with the prescribed registration requirements.”
Alpert’s recommendation to creditors?
“When a debtor is an incorporated company, the secured party must ensure that its registered financing statement shows the debtor’s name as required by the PPSA. After a secured party has registered its financing statement, it should also search against the debtor’s correct name, in order to make sure that its financing statement appears on the search.”
I couldn’t agree more — identify your customer via the proper public record and then perform a reflective search! Every. Time.
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