NOTE: See also Real Estate Standard 5.2: Personal Property.
A creditor placing security over “Equipment” or “Inventory” can perfect its interest by registering a financing statement against the debtor generally describing the collateral, and need not describe it by serial number.
A creditor placing security over “Consumer Goods” must perfect its interest by registering a financing statement correctly describing the debtor, and must also describe the collateral by serial number (where it is a serial numbered good)[1].
Many practitioners act for financial institutions who take security when their client purchases a mobile home. A mobile home is a serial numbered good[2]. When purchased as a residence, it is a consumer good.
If the mobile home owner subsequently makes an assignment in bankruptcy, Trustees examine all registered security interests and will aggressively reject a secured claim if, in their opinion, it was not properly perfected prior to the bankruptcy. An unperfected security interest is not effective against a Trustee in Bankruptcy when the security interest is not perfected before the bankruptcy[3].
The usual reasons for a security interest being rejected by a Trustee include:
(a) Counsel failed to register by both name and serial number;
(b) Counsel failed to register against the correct debtor name;
(c) Counsel failed to register against the correct serial number.
Counsel fails to register by both name and serial number
In Atlantic Canada, including Nova Scotia, courts have held that in order to perfect security against consumer goods, which are also serial numbered goods, it is necessary to register both by debtor name as required by the regulations and serial number[4]. A failure to do so will render the security unperfected.
Counsel fails to register the name properly
This is probably the most common error.
The client’s full name is John William Smith. The bank asks the solicitor to register security on a mobile home under the Personal Property Security Act, SNS 1995-96, c 13. The name given by the bank is John W. Smith. The solicitor registers using “John W. Smith”. The client later makes an assignment in bankruptcy. A search using the full name “John William Smith” does not reveal the registration. This security is not perfected.
The regulations require that in order to perfect security, you must register using the first, middle and last name of the debtor. If there is more than one middle name, use the first of the middle names only[5]. The PPSA regulations set out the requirements for how you should register the debtor’s name.
Counsel fails to register the correct serial number
This will not always result in a “seriously misleading” error. That is because some letters and digits will produce a non-exact match (for example, 1 and l). Ensuring that an error is not made can be as simple as looking at the manufacturer’s original bill of sale, or having the client take a picture of the plate with the serial number and putting it on file.
Mitigating possible problems
If you think that you may have erred in how you register under the PPSA, it is not too late. You can amend the registration to show the correct name or the correct serial number, or dual register if you did not do so. In this way, you can avoid a subsequent trustee in bankruptcy rejecting your secured claim.
[1] Personal Property Security Act General Regulations made under Section 72 of the Personal Property Security Act, S.N.S. 1995-96, c. 13 (“PPSA Regs”), section 23(1)(a)
[2] PPSA Regs, section 2(1)(t)
[3] Personal Property Security Act, S.N.S. 1995-96, c. 13, c. 21(2)(a)
[4] Robie Financial Inc. v. Pricewaterhouse Coopers Inc., 2009 NSSC 397 (Registrar in Bankruptcy); GMAC Leaseco Ltd. v. Moncton Motor Home & Sales Inc. (Trustee of) 2003 NBCA 26; Re Hoskins, 2014 NLTD(G) 12
[5] PPSA Regs, section 20
LIANSwers v77, September 2022