Time to Take PPSA Action

29 January 2013

Although the Personal Property Securities Act (PPSA) has been in effect for over a year, many businesses, whilst aware of the existence of the new regime, have not yet taken the necessary steps to protect their businesses against the risk of loss of assets to third party creditors.

Businesses that supply and hire goods are at significant risk if measures are not taken to protect their ownership rights under the new laws.  It is the unpaid suppliers of businesses and companies that become insolvent that are at the greatest risk of losing assets which, prior to the introduction of the PPSA, would not ordinarily be in danger.

Ownership Now Irrelevant

Suppliers can no longer rely on their relationships and prior business customs to protect them.  Title is no longer king as the relevance of the ownership of goods has been significantly diluted under the PPSA.  Steps must be taken to adequately document and register security interests in goods supplied or hired in order to ensure that suppliers do not face significant adverse financial consequences as a result of their customer becoming insolvent.

Business owners must take steps now to adequately protect their payment and ownership rights in respect to their goods.  The transitionary provisions of the new legislation permit registration without loss of priority by January 2014, however prudent business operators must take action now to ensure that their rights are not compromised.

Common Dealings Impacted

Hire of Goods

Leasing of goods for more than 12 months (or for more than 90 days in the case of serial numbered vehicles, watercraft and aircraft) will trigger PPS Lease provisions.  If you hire goods and do not register your interest in the goods, you are likely to lose the goods to a third party creditor, irrespective of the fact that you have not been paid for the goods or you have not transferred title to the goods if the hirer becomes subject to a claim by a third party creditor.

Sound advice is critical as short term leases may not fall within the PPSA, therefore it may be necessary for businesses to operate under two different systems to deal with the PPSA.  If you permit your goods to be sub-let or hired, you should also obtain advice about how to protect your priority vis-à-vis your sub-hirer.  Similarly, if you purchase goods subject to an existing lease, advice should be sought about whether a new lease should be entered into or whether the existing lease should be assigned as this may also affect your priority.

Retention of Title

Supplying goods on terms, commonly on a ‘retention of title’ basis, now requires registration of your interest in the goods supplied, otherwise they will be deemed to form part of your customer’s assets and will therefore be available to a third party creditor in the event of the insolvency of your customer, irrespective of the fact that you may not yet have been paid for the goods. 

Commercial Agreements

Service Agreements where goods are provided as part of the provision of services may be impacted by the PPSA in addition to arrangements dealing with the reversion of goods upon a default or in other scenarios where personal property is used ‘in substance’ as security.

Inter – Company Arrangements

Where businesses are structured for asset protection purposes to hold assets separately to an operating entity, care must be taken to ensure that arrangements with respect to the hire of assets between related entities, loans made by directors or business owners to the business and other arrangements impacted upon by the PPSA are properly documented and registered.

Recent Canadian case law has highlighted the importance of proper registration and obtaining sound advice as to alternative options to attain and maintain priority and ensure adequate risk mitigation:

Loss of PMSI status

  • A lessor of goods was deemed to have lost its PMSI status as its registration of the goods did not sufficiently describe the goods to allow them to be properly identifiable by a type or kind of collateral[1].
  • Co 1 leased a vehicle to A. A granted B a security interest to secure a line of credit for fuel supplies. B made a PPSA registration containing a description of the vehicle. Co 1 sold the truck to Co 2. A signed a new lease with Co 2.  Co 2 registered the new lease under the PPSA.  A defaulted under its credit arrangement with B.  B sought to enforce its security interest over the vehicle and take possession of it.  A sued B. 

The Court held B retained priority.  If A had of taken an assignment of the lease between Co 1 and A, it would have retained Co 1’s priority.  It instead entered into a new lease with Co 2 and B’s registration therefore took precedence over the registered lease between A and Co 2[2].

Priority for an unsecured party in possession of Goods

  • A registered a conditional contract of sale of equipment against the wrong name of the B (the suffix “Inc.” was used instead of the word “Corporation” after the company name).  Subsequently Co 1 registered against the correct name of B in respect of a factoring agreement and General Security Agreement entered into with B.

A commenced action against B for unpaid moneys owing and took constructive repossession of the equipment by rendering it unusable via the removal of computer chips.

The court held that A had priority despite its invalid registration as it had seized the equipment through legal process and Co 1 knew that A had taken possession of the equipment.  The interests of Co 1 were therefore subordinate to those of A[3].

Assignment of General Security Agreements (GSA)

CPC borrowed $150,000 from BDBC secured by a GSA.  EE lent CPC $465,555 on an unsecured basis. Later the BDBC loan and security was assigned to EE.  EE then claimed that CPC owed it the entire amount under the GSA.  The court held that as an assignee EE did not have a GSA for all the debt but only for the amount of the initial BDBC loan secured by the GSA[4].

Contact Us

For tailored and practical advice about the PPSA and how you can protect your business, contact Fotini Kypraios from our Commercial team on fk@meerkinapel.com.au or (03) 9510 0366.



[1] 843504 Alberta Ltd., Re 2011 ABQB 448, 80 C.B.R (5th) 177 (Alta Q.B.)

[2] MacPhee Chevrolet Buick GMC Cadillac Ltd. v S.W.S. Fuels Ltd, 2011 NSCA 35

[3] Macchi S.p.A. v New Solution Extrusion Inc., 2011 ONSC 766

[4] CPC Networks Corp v Eagle Eye Investments Inc., 2011 SKQB 436 (Sask.Q.B.)