Designing a solid security package: Security agreements

My name is Stephanie Harvey and I'm a Corporate/ Commercial Lending Lawyer with Gowling WLG. This video is part of our Types of Security video series.

In this video we are going to discuss the most common of all security documents, being the Security Agreement.

A Security Agreement is the document whereby the borrower grants to the lender a security interest in the borrower's personal property to secure the repayment and performance of a loan or debt.

Generally speaking, personal property is any tangible or intangible assets of a corporation or other business entity other than the real property or lands and buildings that it may own. The assets subject to the security interest are sometimes called the collateral.

The Security Agreement will include specific covenants whereby the borrower grants several rights, remedies and recourses to the lender against the borrower and its assets if the borrower defaults or fails to make payments or perform other obligations under the loan.  Security Agreements will routinely include provisions entitling the lender to seize and sell the collateral subject to the Security Agreement in the event of a payment or other default. 

Security Agreements typically come into two different formats,

1. a General Security Agreement and;
2. a Specific Security Agreement. 

In a General Security Agreement, the borrower will grant to the lender a very broad security interest in the borrower's present and after-acquired personal property including equipment, inventory, accounts, intellectual property, investment property and motor vehicles. It is very common for lenders on commercial deals providing a general line of credit or broad-based term loans to a borrower to require the borrower to provide  a general security agreement in support of the loan.

A Specific Security Agreement is similar to a General Security Agreement save and except that the assets subject to the security interest is either restricted to certain specific items of collateral like inventory or intellectual property, or more limited in scope so that it only applies to the personal property at a specific site or location.   It is most often used where a lender is only financing the acquisition of certain specific assets, or only the assets at a single location and other lenders are providing financing for the borrower's other operations.

For a number of regulatory reasons, individual persons cannot generally provide a General Security Agreement over all of their assets, but they can provide a Specific Security Agreement over identified assets.

It is not enough for a lender and a borrower to merely enter into a Security Agreement. The security interest granted under the agreement must be "perfected" by the lender. This ensures the lender can enforce its rights.

A perfected security interest is a secure interest in an asset owned solely by the borrower and must be registered with the appropriate authority.

The most common method of perfection is the registration of a financing statement in the electronic public registry system. This system gives notice to others of the security interest that the borrower has granted to the lender.

Except for Quebec, each of the provinces and territories in Canada has a Personal Property Security Act that governs its own registration process and public registry system.

Should you feel you have any questions about the content of this video, please feel free to reach out to me directly, or any one of the Gowling WLG lending team. Thank you so much for watching this video.