PPSA – Personal Property Security Act
- Authors: Nidhi Verma, Marc Laatu
- Date: March 27, 2025
INTRODUCTION
The Personal Property Security Act (PPSA) plays a crucial role in the world of business and finance, especially when it comes to securing loans or credit. Whether you are a business owner, debtor, or legal professional, understanding the PPSA is essential for safeguarding interests and minimizing risks in transactions involving personal property.
WHAT IS A PPSA?
The PPSA is a provincial statute that provides a legal framework for the creation, registration, and enforcement of security interests in personal property. Under the PPSA, businesses and individuals can use their personal property, like machinery, inventory or receivables, to secure loans and access capital. It aims to protect the rights of both creditors and debtors by establishing a clear and predictable framework for secured transactions involving personal property, especially if borrowers default on their obligations.
WHAT IS THE PURPOSE OF PPSA?/ FEATURES OF THE PPSA
Personal Property:
Personal Property under the PPSA refers to any asset that the borrower has except real property (i.e. land or buildings). The personal property in this context refers to tangible and intangible items such as machinery, vehicles, inventory, accounts receivable, intellectual property, and other business assets. These assets are governed by the PPSA when used as collateral in securing loans or obligations.
Security Interest:
A security interest is a legal claim granted by a debtor to its creditor over the debtor’s personal property, which serves as collateral for the repayment of a loan. The most common method for granting a security interest is entering into a general security agreement. Under the PPSA, creation of a security agreement is called “attachment”.
Perfection:
Perfection is the legal process by which a creditor forms and establishes their claim over personal property. This usually involves registering a security interest in a public register, but can also be done through possession of the collateral that is being secured. Perfection by registration provides notice to other potential creditors and ensures that the creditor’s claim is legally recognized and enforceable.
Registration:
The PPSA establishes a centralized registration system, the PPSR (Personal Property Security Registration), which allows you to register a notice of security interest or lien on personal property. By registering their security interest, creditors establish the validity of the security interest and its priority relative to other claims.
Priority:
The creditor who registers their security interest first will have priority over other creditors in the event of default. This system is essential in determining the order in which creditors are paid from the proceeds of the collateral.
IMPORTANCE OF THE PPSA
For Creditors:
The PPSA gives creditors the ability to search existing security interests in a debtor’s personal property and obtain security for their loans, thereby reducing the risk of loss. This provides clear process for registering and perfecting security interests, which helps protect their legal rights and ensures priority in the event of default.
For Debtors:
The PPSA provides a way to leverage personal property as collateral for securing financing. Borrowers/Debtors can access credit by offering their assets as security, which may otherwise not be available.
PPSA Fee:
There are some fees associated with the registration, search, amendments and discharge of security interests under the PPSA. Depending on the size of a particular loan and/or the relative value of the debtor’s personal property, these fees are often well worth the expense of securing a financing transaction. Creditors and businesses should account for these costs when using the PPSA system, as they are necessary for maintaining clear and enforceable security interests.
Conclusion:
The PPSA provides a reliable system for securing loans with personal property. It offers numerous benefits for both debtors and creditors by ensuring that the rights to collateral are clearly established, enforceable and prioritized in case of default. Creditors can protect their rights and minimize the risks associated with lending by registering and perfecting a security interest.
Please note: The information contained above summarizes the requirements for personal property security in Ontario only. If you are a borrower or lender in another province or jurisdiction, or the personal property is in another province or jurisdiction, you should consult with a lawyer in that province or jurisdiction regarding compliance with that jurisdiction’s specific requirements.
Disclaimer: This publication is for general information purposes and is not to be taken as legal advice. The information within is current only to the date of publishing. If you have any questions regarding article content, please contact the author(s) directly.
Properly granting and registering a security interest can be complicated and time consuming. If you need help or would like more information regarding creating, maintaining, or updating your corporation’s records, get in touch with our experienced team of business lawyers at CARREL+Partners LLP today.