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In discussing the degree of specificity that the Personal Property Security Act (the “PPSA” or “Law‘) demands, then-Judge of the New Brunswick Appellate Court Joseph Robertson said it best when he openly wrote under paragraph 67 GMAC Leaseco Ltd. v Moncton Motor Home & Sales Inc. (Trustee of) 2003 NBCA 26:
Legislation sets out precise rules to be followed when identifying debtors. Everyone is aware that there are limitations in the ability of computer search programs to detect close or imprecise matches, and therefore accuracy is of the utmost importance.
Those working in the areas of commercial law, banking, finance and occasionally real estate law will come across the Personal Property Registry System (the “PPRS”). The PPRS is an electronic database required by every jurisdiction PPSA as a primary method for lenders to secure and publicly announce their interest in a debtor’s personal property and for third parties to seek out potential debtors to assess their creditworthiness.
The subject of this article is the PPRS active in the Atlantic provinces with specific reference to Prince Edward Island Law. Care should be taken to check the relevant jurisdictions PPSA and its regulations to ensure compliance with applicable law.
The focus of this article is the often self-evident perfection step of entering the debtor’s name when registering a participation in the PPRS. This data entry sounds simple enough, but even a small mistake can be fatal to a creditor’s secured interest. An error in an obligor’s name (e.g. misspelling, omission of a middle name, entering a common name instead of a legal name) may result in the creditor’s loss of collateral priority over third parties or loss of claim to the collateral altogether.
General requirements for the declaration of financing
§ 43 of Law authorizes and lists a creditor’s registration requirements for filing entries in the PPRS. Registration takes place via an online form, the proof of financing, in which the required data is entered.
The regulations distinguish between private individuals and companies. Companies are partnerships, corporations and similar associations. Individuals are persons in their own right and sole proprietorships. Separate rules apply to the registration of a Funding Statement (including certain data entry fields in the online form) as they relate to individuals and companies. This article focuses on individual debtor names to demonstrate the importance of entering the correct information – however, this principle applies to all registration data entered into the PPRS.
Individual debtor name requirements
The general rules list the data requirements for entering debtor names. In addition to the requirement, registrants are also encouraged to include the debtor’s date of birth in the Funding Statement to distinguish it from other registrations, but this is not required. The way of entering the individual debtor names is as follows:
The registrant must enter the last name, followed by the first name, followed by the middle name, if any. Example: Jane Elizabeth Smith enter: Schmidt | Jane | Elizabeth
If the debtor has more than one middle name (or a hyphenated middle name), enter only the first of the middle names. Example: Jane Elizabeth Lindsay Smith enter: Schmidt | Jane | Elizabeth.
If the single debtor consists of only one name, the registrant enters this name in the surname field. Example: Cher should be entered in Cher.
The regulations also dictate how a creditor must identify a debtor for data entry purposes. Subsection 19(5) requires that if a person was born in Canada, the person’s birth certificate must be used. If no birth certificate is available, Canadian passport, social security number or foreign passport must be used. Subsections 19(5)(c) through (g) provide a hierarchy of alternatives when the person is a non-resident or the aforementioned identifications are not available.
Importantly, subsection 19(7) provides that a creditor may enter other names by which the debtor might be known or which may reasonably be expected to be known. For example, it is recommended that you enter “William Smith” as “Bill Smith” as well. This will further protect secured parties from improper or competing registrations and resulting disputes.
Errors and omissions in individual debtor names
That PPSA provides a security provision for errors and omissions, which, however, can only be relied upon to a limited extent. § 43 para. 7 and 8 of the Law Conditions:
43(7) The validity of the registration of a financial statement shall not be affected by any defect, irregularity, omission or error in the financial statement unless the defect, irregularity, omission or error is seriously misleading;
43(8) an entry is void where there is a grossly misleading deficiency, irregularity, omission or error on behalf of one of the debtors…;
the operational language, seriously misleading, is established on an objective basis, in other words, whether the error would have seriously misled a reasonable user of the PPRS. A determination of whether an error in an obligor name invalidates the registration is context dependent. The PPRS may disclose exact and inaccurate matches. Given this context and system capacity, if a potential creditor searches for a name as required and either:
- If no results are obtained, this will almost certainly invalidate the registration; or
- only close matches are identified, then a second determination must be made using the following non-exhaustive conditions, including whether: (i) the error is minor; (ii) the details of the result otherwise match (date of birth, serial number, debtor’s address, etc.); or (iii) the search results are not long, then after an assessment of these contextual factors, it may be determined that the error is not seriously misleading and the registration remains valid.
For example, if the debtor’s name is common such as ‘John Alexander MacDonald’ and the registrant enters ‘John MacDonald’, the omission of a middle name is almost certainly seriously misleading and the registration will be deemed invalid if the PPRS search is inconclusive.
However, if a debtor’s name is unusual, the balance of financial statement information is correct, the data error is minor, and there are few results that require verification by a searcher, this may result in the registration not being considered seriously misleading and therefore a valid secured interest remains.
Reduction of Ineligible Registrations
If a Secured Holder discovers an error in a PPRS registration, the Holder should promptly file a Funding Amendment Statement in the PPRS to correct the error in the original Funding Statement. § 44 of Law authorizes a party to amend a registration in this manner, but no amendment will take effect until the Funding Amendment Statement is registered.
A Funding Modification Statement does not constitute a perfect registration against competing secured creditors (e.g., a receiver or a secondary lender) who, in the interim between original registration and original registration, perfected their interest or had, by operation of law, a resulting interest resulting from the modified Registration. However, the change declaration will take precedence over competing secured interests that arise after the changed registration.
Given the significant risks associated with improperly filing PPRS registrations, care should be taken to properly identify debtors and submit information in accordance with the PPSA as specifically described in the regulations. Time and care devoted to verifying and confirming PPRS submissions is indeed paramount to ensure perfect collateral.
Recommended course of action
The following is a reference for secured parties when entering individual debtor names into a financing statement. Please note the general provisions of the Law which contains all the data requirements needed when completing a financing statement, including debtor names, registration period and descriptions of collateral (including numbered goods).
- Obtain a copy of the person’s birth certificate (if they are a Canadian citizen) or equivalent to confirm their legal name for registration purposes. If a birth certificate is not available, obtain a copy of the person’s passport or social security number. If none of these are available or the person is not a Canadian citizen, consult the regulations to confirm the required proof of identity. If the above does not apply, obtain either a driver’s license, vehicle registration or health insurance card.
- Have the current address of the individual debtor confirmed for inclusion in the financing statement.
- Enter the person’s date of birth to further distinguish the PPRS registration from competing registrations.
- If the person goes by a name that is not their legal name, or has a legal name that has well-known alternatives (e.g., William and Bill; Robert and Bob; Elizabeth and Betty or Liz, etc.), provide them other well-known names or alternatives along with the legal name on the funding statement.
- If a person has two middle names or a hyphenated middle name, enter only the first middle name or the first name before the hyphen, as appropriate.
- Completely verify the entered data before submitting the PPRS registration.
- After registration, request the verification statement provided by the PPRS. Check the verification statement to ensure the details are correct, including name, address, registration period, serial numbers and description of the collateral (and location of the collateral, if applicable).
The content of this article is intended to provide a general guide to the topic. In relation to your specific circumstances, you should seek advice from a specialist.