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Ontario PPSA Amendments

Posted on December 15, 2015 by - UCC Financing Statements

The 2006 Amendments are Coming to Fruition for the Ontario PPSA

The 2006 amendments to Ontario’s Personal Property Security Act (PPSA) are set to become effective by the end of the year.

Initially I thought “…the amendments passed nearly 10 years ago, and now there is a random rush to implement them?” Apparently I wasn’t alone with this thought. The same surprise appears right in the title of an article by Margaret Grottenthaler & Kelly Niebergall of Stikeman Elliott LLP: “A Little More Notice Please! Amendments to Ontario PPSA Debtor Location Rules Effective December 31 May Require Additional Registrations”

What’s changing?

As you may know, the PPSA is registered in the jurisdiction where the debtor’s “chief executive office” is located.

Unfortunately, “chief executive office” was not well defined under current statute, and by “well defined” I mean not defined at all. Creditors had difficulty in identifying the chief executive office, especially when business structures vary, as Grottenthaler & Niebergall pointed out:

“The background of the 2006 amendments (which are now to be brought into effect) is that there had been criticism of the existing Ontario PPSA debtor’s location definition, on the grounds that the whereabouts of a debtor’s chief executive office is not always obvious given that it is not generally identified on a public record. In addition, the location of the chief executive office can be difficult to determine in the context of partnerships and trusts that may be managed by persons in a variety of jurisdictions or in the case of entities that do not have a specific physical location from which they conduct business.”

How will the 2006 amendments clear up jurisdiction confusion?

The jurisdiction will be determined by the entity type. Grottenthaler & Niebergall provide a great chart which lists the debtor type and jurisdiction side by side.

This is a sample of the chart, Stikeman Elliott LLP, posted on their blog – in this example, if the entity is a corporation, the location of the debtor is where it is incorporated.

Type of Debtor Entity: Corporation, limited partnership or organization organized under the laws of a Canadian province or territory, as disclosed in a public record Location of Debtor: Its province or territory of organization

What if I have PPSAs currently registered? What if I just registered a PPSA in Ontario? 

If you have registered a PPSA in Ontario, you have a few options. Technically there is a grace period for these amendments, much like what we saw when UCC Article 9 was amended – and the grace period is 5 years (again, just like the UCC).

  • Option 1: you could leave your registered PPSA as is and review it sometime over the next 5 years to ensure you have it registered in the proper jurisdiction. (or)
  • Option 2 – The Preferred & Recommended Best Practice: review all existing PPSAs now, and confirm they are registered in the proper jurisdiction. If, in your review, you determine that a PPSA is not registered in the proper jurisdiction, you should amend the PPSA after the first of the year.

We aren’t the only ones recommending you review now as opposed to later – Robert M. Scavone & Maria Sagain, of McMillan LLP make the same recommendation:

“Although in most cases the amendments will provide a five-year grace period to perfect security interests under the new rules, secured parties should avoid being caught by surprise on December 30, 2020 and should begin reviewing existing registrations well in advance of that date to identify which ones will need to be “refreshed” during the grace period. Secured parties will also need to develop new due diligence procedures to ascertain the debtor’s location in accordance with the new rules for all PPSA registrations and searches done after December 31, 2015.”

You can read their full coverage of the Ontario PPSA amendments here: “Where’s Waldo: New Ontario PPSA Debtor Location Rules Finally Coming into Force”

Best Practices

Review all filings now, register a PPSA in the debtor’s jurisdiction and in the jurisdiction in which the inventory is located, and don’t go it alone! NCS UCC experts are here to help

U.S.’s Article 9 of the UCC and Canada’s PPSA

Posted on July 27, 2023 by - UCC Financing Statements

The U.S.’s Article 9 of the Uniform Commercial Code (UCC) and Canada’s Personal Property Security Act (PPSA)

The U.S.’s Article 9 of the Uniform Commercial Code (UCC) and Canada’s Personal Property Security Act (PPSA) are sets of law that govern commercial transactions between states and provinces.

The PPSA was largely modeled after the UCC.

Forms

First, let’s take a look at the specific forms used when filing a UCC or registering a PPSA. It’s interesting to note, in the U.S. the UCC3 Financing Statement is used if a filing needs to be amended, continued or terminated. Whereas in Canada, a Renewal is used to continue a filing, a Change Statement is used to amend a filing and a Discharge is used to terminate a filing.

UCC and PPSA

In order to create a security interest you must:

  • Have a signed Security Agreement and the security agreement must contain a granting clause and collateral description
  • Record (US) or Register (Canada) the Financing Statement to make the security interest public record
  • Notify the prior secured creditors in order to Establish Priority in Inventory

The Financing Statement does not require the debtor’s signature

UCC versus PPSA

Despite their overall similarities, there are significant differences between the UCC & the PPSA

  • Individuals
    • Under the UCC, verify the individual’s name with an unexpired driver’s license
    • Under the PPSA, include the individual’s birthdate
  • Establish Priority in Equipment
    • Under the UCC you must record your filing within 20 days of your customer’s receipt of the equipment
    • Under the PPSA you must register your filing within 15 days of your customer’s receipt of the equipment
  • Where to File
    • A UCC: for a registered entity the UCC is filed in the state of organization and the UCC for an individual is filed in the state of residence
    • A PPSA: if the entity is registered in British Columbia, Ontario, or Saskatchewan, the PPSA is registered in the province of registration, otherwise the PPSA is registered in the province(s) in which the entity is registered and where goods are located
  • Life of Filing
    • In the US, the secured party’s filing is good for 5 years (in most states – WY filings are good for 10 years)
    • In Canada, the secured party may choose a filing period from 1-25 years or “infinity”

PPSA  

The PPSA allows for repossession upon default, much like the UCC, however, the PPSA provides a broader definition of default.

Default is the failure to pay or otherwise perform the obligation secured when due, or the occurrence of an event or set of circumstances that, under the terms of the security agreement, causes the security interest to become enforceable.

A secured party may take possession of and sell the collateral when the debtor is in default under the security agreement or when the collateral is at risk. The collateral is “at risk” if the secured party has reasonable grounds to believe the collateral has been or will be destroyed, damaged, endangered, disassembled, removed, concealed, sold, or otherwise disposed of contrary to the terms of the security agreement.

Remember Quebec did not adopt the PPSA. They have their own law called the Civil Code of Quebec. The most recognized difference between Quebec and PPSA law is the interpretation of the concept of chattel mortgage.

Editor’s Note: This content was originally published in August 2014. It has since been updated and revised for 2023.

Mechanic’s Lien Rights in Canada at a Glance

Posted on October 4, 2021 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Let’s Talk Mechanic’s Lien Rights in Canada

Over the last few years, several provinces in Canada have modernized or proposed amendments to their mechanic’s lien laws. Notably, Ontario paved the way for longer lien deadlines and prompt pay statutes, with its changes in 2018. Like lien rights in the U.S., each of Canada’s provinces has its own statute, which dictates when/if a notice should be served, when a lien should be recorded, and when a suit action must be initiated. So, let’s travel north and review the steps for securing mechanic’s lien rights in Canada.

Project Types: Private, Provincial Crown, Federal Crown

Although today’s post is primarily about mechanic’s lien rights in Canada, it’s worth noting that projects in Canada will fall into one of three categories:

  • Private: improvement contracted by a private entity, e.g., a person, company, or corporation
  • Provincial Crown: improvement of public works or building under formal contract made by Provincial government
  • Federal Crown: a contract for construction, alteration, or repair of any public building or public work of the Canadian government

Provincial and Federal Crown projects are generally not lienable, and any remedy available to claimants will likely be under a Labour & Material Bond. The Labour & Material Bond is a surety bond issued as assurance of payment to certain parties should the principal of the bond breach their construction contract.

10 Provinces, 3 Territories, 1 Requires a Preliminary Notice

Canada is comprised of 10 provinces: Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland / Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan, and 3 territories:  Northwest Territories, Nunavut and Yukon. Only one requires a preliminary notice to preserve mechanic’s lien rights: Quebec.

For those familiar with securing lien rights in the U.S., it may seem odd to not have a preliminary notice requirement. After all, most states require a preliminary notice and NCS’ research shows 97% of the time serving a notice will prompt payment, reducing the likelihood of a mechanic’s lien.

Though most Canadian provinces do not have preliminary notice requirements, you could serve a non-statutory notice. This gently worded notice alerts parties on the ladder of supply that you are (or will be) furnishing to the project.

Is 1 the loneliest number? If you are furnishing to a project in Quebec, you should serve notice (Declaration of Contract) upon the owner prior to furnishing or prior to the fabrication of specially fabricated materials. The lien (aka legal hypothec), when later filed, will be limited to the materials or services provided after the notice has been served.

I did say only 1 province has a notice requirement, and while that is technically the case, both Ontario and Nova Scotia provide claimants an opportunity to serve a written request upon the owner, prime contractor, or subcontractor for project information and a copy of any payment bond.

Also, Ontario, Prince Edward Island, and Saskatchewan have a Notice of Lien which may be served upon the payer (the owner, prime contractor, and subcontractor), requiring them to retain, in addition to the holdback, an amount sufficient to satisfy a lien.

Lien & Suit Deadlines Will Sneak Up on You

When you review the chart below, you may notice two things right away: the lien deadlines are often calculated from your last furnishing, and the deadlines happen quite quickly. In the U.S., we frequently see lien deadlines within 90-120 days from last furnishing (even 8 months in New York!). The same is not true for Canada, where lien deadlines are generally within 30-60 days from last furnishing.

Mechanic’s Lien Rights in Canada at a Glance

The National Lien Digest provides greater detail, but here are the general lien deadlines for all 13 provinces/territories:

[table id=3 /]

Earlier I mentioned Ontario recently modernized their mechanic’s lien statute. Part of the modernization included the implementation of a longer lien filing period, giving would be claimants an additional 15 days to file their liens. (Lien deadline used to be 45 days from last furnishing.)

Advice for Lien Rights in Canada

Because deadlines are short, carefully track your deadlines, monitor open invoices, and maintain an open line of communication with your customer.

If you have questions about securing lien rights in Canada or need assistance with filing a lien, please contact us! In addition to our network of attorneys in the U.S., NCS has a well-established network of attorneys in Canada who are prepared to assist with your claim.

Canada: Provincial Construction & Your Payment Rights

Posted on October 11, 2019 by - In Other Commercial Credit News

Canada: Your Payment Rights on Provincial Construction Projects

If you are furnishing to a construction project in Canada, you follow steps to secure mechanic’s lien or bond claim rights, much like you would when furnishing to a project in the United States. Construction projects in Canada will likely fall in to one of three categories: private, provincial crown/government, or federal crown/government.

  • Private: improvement contracted by a private entity, e.g., a person, company, or corporation
  • Provincial Crown: improvement of public works or building under formal contract made by Provincial government
  • Federal Crown: a contract for construction, alteration, or repair of any public building or public work of the Canadian government

What is a Provincial Project?

A provincial project is the improvement of public works or building under formal contract made by the provincial government. The provincial government is the equivalent to state government in the U.S.; where the U.S. has 50 states, Canada has 13 provinces.

Often, construction claims on provincial projects are recovered via a Labour & Material Bond, which is a payment bond.

Labour & Material Bond: A surety bond, particularly on public projects, issued as assurance of payment to certain parties should the principal of the bond breach their construction contract.

Currently, only 2 provinces have payment bond requirements for provincial projects: New Brunswick and Ontario.

  • New Brunswick: On Crown Construction contracts of $500,000.00 or more, a bid bond and a payment bond will be required. On Crown Construction contracts less than $500,000.00, a bid bond and a payment bond may be required.
  • Ontario: generally, payment bonds are required for general contracts of $500,000.00 or more.

We are watching proposed legislation in other provinces where payment bonds may soon be statutorily required on provincial projects.

No Payment Bond? File a Public Works Act Claim

Different than a bond claim, a Public Works Act Claim (public improvement lien) is a claim served upon the provincial crown, in which the public entity may pay the claimant directly from funds owed to the prime contractor. The public improvement lien is available in the following provinces:

  • Alberta
  • Manitoba
  • New Brunswick
  • Newfoundland
  • Nova Scotia
  • Ontario
  • Saskatchewan

How Can the Public Works Act / Public Improvement Lien Help in the Event of Bankruptcy?

In his article, Doing Work on a Provincial Project? Protect Yourself with a Public Works Act Claim, author Anthony Burden reviewed a recent case before the Alberta Bankruptcy Court. You can read his article in full for the details, but ultimately the bankruptcy court declared a claimant’s Public Works Act claim took priority over unsecured claims and the claimant received payment in full.

“The Court lifted the automatic stay to allow funds to be paid out of Court to… its sub-subcontractors, in the amount of their proven claims. This was done without a formal Order approving the BIA Proposal by [debtor]. Despite [debtor’s] insolvency, its sub-subcontractors were able to receive full payment for their debt claims and were not required to share pro-rata.”

Arbitration is Alternative Dispute Resolution

Posted on October 12, 2018 by - Credit Risk Management, In Other Commercial Credit News

Dispute Resolution Alternative: What is Arbitration?

Arbitration, like mediation and adjudication, is a form of alternative dispute resolution and is typically favored in lieu of litigation. Generally, in arbitration an impartial third party listens to each side of the dispute and makes a decision resolving the dispute.

It’s important not to confuse arbitration with mediation, which, admittedly, I initially did. The American Bar Association notes “Arbitration is different from mediation because the neutral arbitrator has the authority to make a decision about the dispute.” In mediation, the third party is present to facilitate the conversation, rather than offer resolution.

The American Arbitration Association explains arbitration as “A private, informal process by which all parties agree, in writing, to submit their disputes to one or more impartial persons authorized to resolve the controversy by rendering a final and binding award.”

In most contracts, construction & otherwise, you will find an arbitration clause. On its website, American Arbitration Association provides visitors with the following standard construction arbitration clause.

“Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.”

Clause is Present, Suit Dispute

Despite the presence of an arbitration clause within a contract, one or more parties involved in a dispute may file a lawsuit. Once a lawsuit has been filed, someone may file a motion to dismiss the lawsuit, based on the arbitration clause within the contract. However, according to a recent article by Robert Cox of Williams Mullen, once the court is involved, it’s up to a judge to determine whether the dispute should be arbitrated by the court or by an arbitrator.

“A court resolving an arbitrability dispute must engage in a two-step inquiry… First, the court must determine who decides whether a particular dispute is arbitrable – an arbitrator or the court. Second, if the court determines that it is the proper forum to adjudicate the arbitrability of the dispute, then the court must decide whether the dispute is in fact arbitrable.”

Cox goes on to say a dispute is suited for the courts unless the language within the contract “clearly and unmistakably provides that the arbitrator shall determine what disputes the parties agreed to arbitrate.” Further, according to Cox, courts have frequently determined “… that incorporation of the American Arbitration Association’s (AAA) arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.”

When Arbitration Won’t Be Arbitrated, Arbitrarily

There may be circumstances when a judge will determine an arbitrator should not preside over a dispute. According to Cox, several U.S. Courts of Appeals have used a test called “wholly groundless” to determine whether arbitration is appropriate. What is “wholly groundless”? Essentially, if the claim is frivolous or deemed unlawful.

Parting Thoughts

There are many benefits to arbitration. Arbitration may be a faster and less expensive process than formal litigation; plus, in binding decisions, an arbitrator’s decision will be upheld by courts.

I admit, the arbitration clauses are a bit foreign to me, but I found The AAA Guide to Drafting Alternative Dispute Resolution Clauses for Construction Contracts, published by American Arbitration Association to be quite insightful. It appears American Arbitration Association maintains an industry standard for arbitration clauses, though as a best practice you should seek legal guidance when drafting and/or signing an agreement.

The Critical Role of Furnishing Dates in Lien Rights

Posted on November 10, 2017 by - In Other Commercial Credit News

The Critical Role of Furnishing Dates and Your Lien Rights

A key to properly calculating mechanic’s lien and bond claim deadlines is knowing your first & last furnishing dates. Simple; date is a date, right? Oddly, determining your last furnishing date may sometimes be more difficult than it should be.

What is “Last Furnishing”

Generally, your last furnishing date is the date on which you last substantially furnish materials or perform services on a project. When clients ask how to determine their first & last furnishing dates, it frequently seems easier to explain what doesn’t count as a last furnishing. Typically, punch list work, warranty, or remediation will not extend your last furnishing date.

Can Last Furnishing Include Off-Site Work?

In some cases, yes, according to a recent legal decision reviewed by lawyer Chad Kopach.

In Timeliness of the Lien – Rethinking the “Date of Last Supply,” Kopach reviews a recent Ontario court decision, where the court determined the subcontractor’s lien was timely, even though the lien deadline was calculated based on an off-site  last furnishing, and not the last date the subcontractor was physically on the job.

According to Kopach, parties on the ladder of supply often look to time sheets to determine the date of last furnishing.

“When determining if they still have time to lien, most subcontractors look to their time sheets to find out when their workers were last on site, thinking that they are out of time to lien if the last timesheet is dated more than 45 days ago.

Similarly, the owner and general contractor will often rely on site records (including log books and time sheets) to determine what subcontractors still have lien rights based on who was on site within the last 45 days.”

How will the court determine a claimant’s last furnishing? Kopach states a court may review the subcontract to determine whether off-site work would qualify as furnishing. At least, that’s where the court looked in this case.

Within the subcontract, the subcontractor was to provide additional “design and other preparatory work” during a scheduled shutdown. Thus, the court determined the last furnishing date used by the claimant was sufficient.

“Supply” Doesn’t Always Mean “Physically Supply”

Kopach reminds readers, the definition of “supply” may vary.

“…services and materials supplied to an improvement are supplied physically. Accordingly, in many cases a subcontractor’s date of last supply is the same day that the subcontractor was last physically on site.

However, the Act does not limit “supply” to mean only physical supply, and defines the supply of services as including “any work done or service performed upon or in respect of an improvement” (emphasis added).”

Be Conservative

Although this case appears to be more “exception” & less “rule” it’s important to remember that a last furnishing date may not be the last date you were physically at the job site. Just be careful when determining your last furnishing date – always make sure it is substantial. And, of course, use the most conservative last furnishing date possible when calculating your deadlines.  When in doubt, seek a legal opinion.

3-in-3: Taking a Secured Interest in Canada via the PPSA

Posted on July 17, 2017 by - UCC Financing Statements

3-in-3: Taking a Secured Interest in Canada via the PPSA

Today’s 3-in-3 features UCC Specialist, Diane Toth. Read this post to learn more about the similarities and differences of the UCC and PPSA.

Canada’s Personal Property Security Act was enacted in the early 70’s and modeled after Article 9 of the Uniform Commercial Code.  Just like a UCC filing, a properly perfected PPSA requires a signed security agreement, public registration of the Financing Statement, and search/notification of any previously secured creditors.

A UCC is filed based on where your customer is registered. What determines where a PPSA is registered?

Diane:  Under Article 9 of the UCC Financing Statement, it’s filed in the jurisdiction of where the debtor is registered, or if an individual, in their state of residence.  Under the PPSA, the security interest is registered in the jurisdiction where the chief executive office is located.

Unfortunately, the PPSA does not define chief executive office, which leaves where to file when shipping to multiple provinces open to interpretation. Under the current PPSA, if the chief executive office is in Alberta, but you’re shipping to British Columbia and Ontario, you would want to file in Alberta, British Columbia and Ontario.

The good news is the Ontario PPSA recently enacted an amendment that better defines a debtor location and this change is more in line with Article 9’s debtor location rules.  (Hopefully the remaining provinces will follow suit!)

Another exception is the province of Quebec.  Quebec has chosen not to follow the PPSA and governs its secured transactions under the Quebec Civil Code which requires an agreement called the Deed of Hypothec.

Is establishing priority in equipment different when registering a PPSA vs. filing a UCC?

Diane:  Yes, under Article 9 you have 20 days from the date of delivery of the equipment to file a UCC to maintain priority rights in your equipment. To maintain your rights under the PPSA, you only have 15 days from the date of delivery to file your PPSA. If you file on the 16th day after the equipment is delivered, you will lose your priority on that equipment which also includes the loss of right of repossession.

UCC filings are effective for 5 years (except Wyoming, which is 10 years). Is a PPSA also effective for 5 years?

Diane: No, under PPSA you choose the length of time for your security interest.  You can choose between 1 to 25 years or even infinity.  Of course, the longer the filing is effective, the more expensive the filing fee.  If you do choose to validate your PPSA for longer than 5 years, the best practice would be to conduct periodic searches to review for any changes that may affect your security interest.

If you have questions, don’t hesitate to contact us – we’re here to help!

A Surety’s Perspective on Public Private Partnerships

Posted on December 2, 2016 by - In Other Commercial Credit News

A Surety’s Perspective on Public Private Partnerships

OK, I admit it. In recent memory, I don’t think I’ve read any articles on P3s from a surety’s perspective. I don’t find myself worrying “How does the surety feel?” when I read a case of an unpaid subcontractor.

I, for obvious reasons, tend to gravitate towards the portions of statute that protect our clients and afford those furnishing to construction projects the opportunity for payment security.

So, how does the surety industry view Private Public Partnerships (aka P3)? This precise question is answered in an article from Engineering News-Record (ENR).

Lenore Marema, VP of government affairs of the Surety & Fidelity Association of America (SFAA), wrote Surety Sector P3 Progress Report: How the Surety Industry Sees Public-Private Partnerships and she says, that although states are slowly adopting P3 laws, the number of states that have the laws is subordinate to whether or not the laws recognize the value of bonds necessary to complete these projects.

“State lawmakers have been adopting P3 laws slowly and steadily for over a decade. From the perspective of The Surety & Fidelity Association of America (SFAA), the critical issue isn’t how many states have such laws, but whether the laws recognize the value of surety bonds and lead to getting needed infrastructure projects done in states that lack the necessary funding.”

Marema goes on to note that SFAA and the American Insurance Association (AIA) feel the P3 laws need to have a bonding requirement and that these projects should be bonded in line with those projects bonded under a state’s Little Miller Act.

“Construction under any P3 produces a public facility, such as a road or wastewater facility, and it should be bonded under the state Little Miller Act just like a public works project delivered under any other method.”

Marema also noted that it’s important that these bonds only cover design and construction and are not for operations and maintenance, as design and construction are within their qualified purview.

Based on Marema’s review of 2016 P3 legislation, it appears states are on the right track. She specifically referenced the four states that have passed P3 legislation this year, (KY, LA, NH & TN), as all four have included a requirement for a surety bond for design and construction within their statute.

Marema’s parting words reinforce the vital need for sureties and bonds.

“There is a lot more work to be done to ensure sureties’ role in these projects. Bonding is sound public policy that has assured successful completion of construction projects and protected businesses for decades—and that holds true regardless of who is providing the revenue stream for the projects.”