Failing to respond to PPSA information requests proves costly for secured lender

5 minute read
01 June 2015

The Ontario PPSA1 system allows secured parties to complete and file financing statements against debtors without their prior consent. To ensure the accuracy and appropriateness of the registrations made, the PPSA also gives debtors and third parties certain rights, including tools to obtain further details of the registrations made. One of those tools is Section 18 which allows debtors and third parties to request, among other things, that secured parties provide copies of the security agreement and details of the debt secured, and confirm the scope of the security interest claimed, in each case within 15 days of a request.2 Section 18 is the provision that enables a prospective secured creditor to request PPSA estoppel letters or acknowledgments in the context of a proposed new financing.

A recent Ontario case has shown that these requests for information cannot be ignored.

Magazine Acquisition3 involved the sale of a business where the vendor (Markplan) received a general security agreement (GSA) from the purchaser (MAC) to secure the repayment of the deferred portion of the purchase price of the assets. As part of the sale arrangements, Markplan was required to execute a subordination agreement in favour of another secured creditor (Osman) related to the purchaser who provided most of the acquisition funding.

When MAC defaulted on the deferred payment, Markplan wrote to MAC and Osman requesting specific information pursuant to section 4 of its GSA. When the requested information was not provided, Markplan brought a court application to obtain that information as well as disclosure of other information pursuant to Section 18 of the PPSA in its capacity as a registered security interest holder.4 Instead of responding to the request for information, MAC and Osman filed lengthy court materials on issues unrelated to the information requested. They ignored the information request and launched a litigation campaign suggesting that Markplan was coming to court with unclean hands, presumably to support a later set-off claim against the deferred portion of the purchase price owed by MAC to Markplan.

The court found that Osman had no reasonable basis to resist producing the requested information under Section 18.5 It concluded that the refusal to provide information was done as a stall tactic, pure and simple, in an effort to drive up Markplan’s legal costs.6

At the end of the day, MAC and Osman were required to disclose the requested information and due to their delaying tactics, the court awarded substantial indemnity costs against them in excess of $35,000.

No mention was made by the court in its judgment as to why the disclosure of information was so strongly opposed. In any event, it is clear that secured lenders do need to respond promptly and in good faith to information requests properly made under Section 18 of the PPSA or risk an adverse costs award against them for a failure to do so.7

1 Personal Property Security Act, RSO 1990, c P.10 [Ontario PPSA].

2 Section 18(1) of the Ontario PPSA.

3 Markplan Inc. v. Magazine Acquisition Corp., 2014 ONSC 1730 [Magazine Acquisition]. Motion for leave to appeal the award of costs was dismissed, 2014 ONSC 3405.

4 Magazine Acquisition, at paras. 4 and 5. Although the judgment indicates that Markplan requested a copy of the Osman credit agreement pursuant to Section 4 of its GSA, the judgment does not specify exactly what information was requested under Section 18.

5 Magazine Acquisition, at para. 14.

6 Magazine Acquisition, at para. 15.

7 Under Section 18(7) of the PPSA and Section 2 of Ontario Regulation 56/07, a secured party is permitted to require payment in advance of certain nominal charges for each statement or copy of a security agreement required to be provided under section 18(1), but the debtor is entitled to a statement without charge once in every six months.

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