Often, when obtaining a loan from a bank or other lender, the lender will insist on taking “security” and “registering a lien” under the Personal Property Security Act (Ontario), or “PPSA”. These terms can be very confusing as they are often misused or confused with other concepts, even by the persons and companies that are using them.
To clarify matters this article will break down these three concepts into simple terms and explain what they really mean to borrowers.
1.Security
The PPSA system is based around the idea of “security”, which is short-hand for a “security interest” or “secured interest”. In the vast majority of cases, a security interest is a right that a lender takes over certain property of the lender, to ensure the lender fulfills its obligations related to the loan that was given to them. The key obligation being, making payments when they are due. When a lender takes a security interest it means they are taking the right to seize certain property of the lender, if the lender doesn’t repay, or make payments on the loan, when they are supposed to.
2. Registering a Lien
Outside of the construction context, when someone refers to “registering a lien” what they are really referring to is registering notice of a security interest under the PPSA. Once a company has a security interest, they can register notice of that security interest to let other parties know that company has rights over certain property of the lender. The government of Ontario maintains a searchable database that allows anyone to look at what notices are registered against each individual and company. That is why it is always advisable before going into business with a third party, to search their name under the PPSA to find out whether their property is free and clear of any third-party rights, and if not, to address those security interests up front.
3. The PPSA
The PPSA is an Act in Ontario that sets out the framework for creating, registering and searching security interests throughout the province. Each province has its own version of the PPSA, which is important to keep in mind when doing business outside of Ontario. The PPSA has very specific and technical rules which set out when and how a security interest is created and who takes priority over the property of the borrower when there are multiple security interests in effect.
Security interests are a very important part of obtaining financing in Canada and abroad. They allow lenders to get the comfort they need to lend to turn around and lend to borrowers the money they need. This concept, under the framework of the PPSA provides lenders with a degree of certainty, and gives borrowers a bargaining chip to use to secure financing.
There is, of course, much more to know about security interests and PPSA registrations than is covered by this article. If you have any questions about any of these concepts contact HazloLaw today.
This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Hugues today. 613-747-2459 ext.304, hboisvert@hazlolaw.com