CANADA Law and Practice Contributed by: Scott Hyman, Anthony Spadaro and David Wilson, Davies Ward Phillips & Vineberg LLP
typically secured on a pari passu basis with the senior debt, the hedge provider (in its capacity as such) does not typically have voting rights and is not typically a party to the intercreditor agreement. However, the “obligations” owing to the senior creditors will include any hedge obli- gations and, therefore, they will be repaid in the waterfall along with the other senior obligations. 5. Security 5.1 Types of Security Commonly Used Canada has two distinct legal systems for civil matters. All provinces and territories other than Quebec follow a common law system, while Quebec has a civil law system. Every common law province has enacted some variation of a statute known as the Personal Property Security Act (PPSA), which governs the taking of security over personal property in that jurisdiction. The PPSA was modelled after Article 9 of the Uniform Commercial Code in the United States, although there are important differences between them. Similarly, each common law province has its own land titles or a similar system that governs the taking of real property security in that jurisdic- tion. While there are subtle differences in each jurisdiction, the form and registration require- ments are fairly similar among the common law provinces. In Quebec, the taking of security on personal and real property is governed by the Civil Code of Quebec (CCQ), which has unique form and registration requirements. The PPSA governs the creation and perfection of security interests in common law provinces. Creation is the process by which a valid security interest is obtained by a creditor in all or cer- tain personal property of a debtor. Perfection is the process by which that security interest is
rendered effective (and its priority recognised) against third parties. A security interest is not enforceable against third parties unless it has “attached” . A security interest attaches to certain collateral when: • value is given to the debtor; • the debtor has rights in the collateral or the power to transfer rights in the collateral to the secured party; and • the debtor has executed a security agree- ment. A security agreement may also cover after- acquired property, in which case the security interest will attach when the debtor acquires rights in such property. Perfection requirements vary depending on the type of collateral, but the most common meth- od of perfection is by registration of a financing statement in the applicable personal property register. Registration perfects a security inter- est in any type of personal property to which the PPSA applies. However, depending on the type of collateral, other methods of perfection may have priority over a security interest that is perfected by registration alone. For example, a creditor that has “control” over a certificated security or a securities account has priority over a creditor whose security interest over the same collateral is perfected only by registration. Per- fection by control over deposit accounts is not
possible under the PPSA. 5.2 Form Requirements Common Law Provinces
If a security interest is taken in all of a debtor’s personal property, the debtor will typically exe- cute “general security agreement” in favour of the secured party. This agreement creates the
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