The Government of Ontario has proposed three significant amendments to the Personal Property Security Act (Ontario) (the “PPSA”) in recent years which have not yet been brought into force. The changes are: (1) to perfection of security interests in cash collateral; (2) to the conflict of laws provisions relating to the location of a business debtor; and (3) to replace the “check-the-box” system for collateral descriptions in financing statements.

1. “Control” Over Cash Collateral

In the 2012 and 2013 budgets, the Government of Ontario announced its intention to change the regime for perfecting a security interest in deposit accounts or other forms of cash collateral. However, the government has not outlined the specific form that these amendments will take.

Currently, a secured party can only perfect its security interest in cash collateral by registration of a financing statement under the PPSA. Accordingly, priority is governed solely by the order of registration and the first to register rule under Section 30(1) of the PPSA (subject to certain exceptions).

Based on the government’s few comments on the issue, the new regime would possibly take the form recommended by the Ontario Bar Association’s Personal Property Security Law Subcommittee1 (the “OBA Subcommittee”), which would be similar to Article 9 of the Uniform Commercial Code (the “UCC”) in the United States. The proposed amendments would create an alternative method to perfect a security interest by “control” over deposit accounts or other forms of cash collateral similar to the provisions in the PPSA and the Securities Transfer Act, 2006 (Ontario) with respect to “control” over investment property. This would create certainty for lenders by ensuring that a secured party could obtain a first priority security interest if it established control, regardless of the order of perfection, over any secured party that does not have control.

The OBA Subcommittee’s proposed amendments would create “financial accounts”, a new class of collateral under the PPSA. “Financial accounts” would include most deposit accounts and other forms of cash collateral, but would likely exclude “consumer accounts” (i.e. accounts maintained by natural persons for personal purposes). There would be three ways for a secured party to perfect its security interest in these “financial accounts” by control:

  1. Automatic. If the secured party is the financial institution holding the financial account, it will automatically have control.
  2. By Agreement. The secured party can take control by entering into a control agreement with the debtor and the third party financial institution holding the financial account, by which the secured party is granted control of the funds in the account.
  3. By Transfer. The secured party can take control if the debtor transfers the funds into a financial account of the secured party that is maintained at the third-party financial institution.

In addition to perfection by control, a secured party under the OBA Subcommittee’s proposed amendments would still be able to perfect its security interest by registration of a financing statement, as is the case currently.

2. Location Of Debtor

The amendments to the conflict of laws provisions in the PPSA concerning the location of a business debtor are contained in Bill 152, the Ministry of Government Services Consumer Protection and Service Modernization Act, 2006 (Ontario). Bill 152 was passed by the legislature and given Royal Assent in December 2006, but certain amendments have not yet been proclaimed into force. Like the changes to the cash collateral rules, the amended conflict of laws provisions would be similar to Article 9 of the UCC in the United States.

Currently, under Section 7 of the PPSA, validity and perfection of a security interest in certain collateral2 are determined by the laws of the jurisdiction where the debtor is located at the time the security interest attaches. A debtor is deemed to be located in the following jurisdiction:

  1. That of the debtor’s place of business, if there is one,
  2. If there is more than one place of business, the jurisdiction of the debtor’s chief executive office, or
  3. Otherwise, the jurisdiction of the debtor’s principal residence.

The PPSA does not define “chief executive office” and there is little judicial consideration of the matter, which often causes significant confusion and uncertainty in secured lending transactions.

The amendments to Section 7 of the PPSA would create a much clearer test to determine a debtor’s location. A debtor that is incorporated under the laws of a province or territory in Canada would be deemed to be located in the jurisdiction where it is incorporated. If the debtor is a federal Canadian corporation incorporated under the Canada Business Corporations Act, it would be deemed to be located in the jurisdiction of its registered office or head office. Where the debtor is incorporated under the laws of a state in the United States, it would be deemed to be located in that state.

3. Removal Of The “Check-The-Box” System In Financing Statements

As part of Bill 152, the government announced that it would move away from the “check-the-box” collateral description in financing statements and toward a system where the secured party inputs a narrative specifically describing the collateral by item or type. The “check-the-box” system was originally introduced in the first attempt to computerize the PPSA registration system in Ontario and to conserve computer memory, which is no longer a concern. However, this change will involve an extensive computer system overhaul, and as such has not taken place yet. The antiquated PPSA “check-the-box” system in Ontario is unlike any other jurisdiction in Canada or the United States.

Under the current system, the secured party must describe the collateral by checking the appropriate box or boxes on the financing statement, describing the collateral as “Inventory”, “Equipment”, “Accounts”, “Other” and/or “Motor Vehicles”3. The secured party also has the ability to limit the generality of the collateral description with a narrative in the general collateral description box.


Though the government has not yet indicated when these amendments will be implemented, they will constitute significant changes and, in each case, improvements to the PPSA, and are therefore important to keep in mind.

Please contact Shane Pearlman or another member of our Financial Services Group for more information.


1 “Perfecting Security Interests in Cash Collateral” (February 6, 2012), The Ontario Bar Association, Personal Property Security Law Subcommittee.

2 This regime applies to security interests in (1) an intangible; (2) goods that are of a type that are normally used in more than one jurisdiction, if the goods are equipment or inventory leased or held for lease by a debtor to others; and (3) non- possessory security interests in an instrument, a negotiable document of title, money and chattel paper.

3 There is an additional box for “Consumer Goods”. “Consumer Goods” are goods which are used for personal or household purposes and are typically outside the scope of secured lending transactions.



Shane B. Pearlman


Financial Services Sectors
Banking and Financial Services