This article was authored by Chris Dennehy, an Associate at Gowling WLG's Calgary office.
Borrowers with an existing active business seeking secured financing or refinancing rarely come to the table with a clean slate of unencumbered assets. Due diligence searches conducted on current and prior names of a prospective borrower will often reveal the continued existence of PPSA registrations relating to secured loan arrangements that have long since been repaid in full but where the underlying registrations were never discharged. When contacted with a discharge request, the old secured creditor may be unco-operative, unresponsive or simply too busy to promptly address such a request within the timetable required for the new financing or refinancing. Fortunately, the Alberta Personal Property Security Act (the "PPSA") contains provisions that provide a borrower (and the new lender) with remedies to address the undischarged registrations.
Section 50(3) of the Alberta PPSA allows a debtor or any person with an interest in property that falls within the collateral description in a financing statement to give a written demand to the secured party who has registered such financing statement in the following cases: (i) where all of the obligations under the security agreement to which it relates have been performed, (ii) where the secured party has agreed to release part or all of the collateral described in the financing statement, (iii) where the collateral description in the financing statement includes an item or kind of property that is not collateral under a security agreement between the secured party and the debtor or does not distinguish between original collateral and proceeds, or (iv) if no security agreement exists between the secured party and the debtor.
Section 50(4) requires the secured party to whom written demand has been given, not later than 40 days after the demand is given, to either register a financing change statement to amend or discharge the registration, as the case may be, or to provide to the Registrar an order of the Court confirming that the registration need not be amended or discharged, accompanied with a completed financing change statement in respect of the order.
If a secured party fails to comply with a demand referred to in subsection 50(3), the person giving the demand may register the financing change statement referred to in subsection 50(4) (a) on providing to the Registrar satisfactory proof that the demand has been given to the secured party.
Due to the length of time involved in this discharge mechanism, it is important for borrowers and lenders to be aware of this remedy early on so that they may activate it as soon as possible. Further, in many cases, issuing the formal demand will assist the old secured creditor in prioritizing the discharge.
There are some additional provisions involving section 50 of the PPSA that secured creditors, debtors, or purchasers should be aware of. For example, if after a debtor defaults, a secured party may propose to take the collateral in satisfaction of the obligations secured, subject to the notice requirements set out in subsection 62(1) of the PPSA. If the secured party complies with the notice requirements of subsection 62(1) and no notice of objection is given, the secured party is deemed to have irrevocably elected to take the collateral in satisfaction of the obligations secured by it and is entitled to hold or dispose of the collateral free from all rights and interest of the debtor and any person entitled to receive a notice under subsections 62(1)(b) and (c) whose interest is subordinate to the secured party and who have been given the notice and all obligations secured by those interests are deemed performed for the purposes of section 50(3)(a).
Further, where a secured party disposes of the collateral to a purchaser who acquires the purchaser's interest for value and in good faith and who takes possession of it, the purchaser acquires the collateral free from the interest of (i) the debtor, (ii) an interest subordinate to that of the debtor, and (iii) an interest subordinate to that of the secured party, whether or not the notice requirements of section 62 have been complied with by the secured party and all obligations secured by the subordinate interests are deemed performed for the purposes of section 50(3)(a).
If a party fails, without proper justification, to discharge a security interest when demand or if a registration is amended or discharged without proper authority then damages may result. Subsections 67(1) and (2) provide that if a secured party, without reasonable excuse, fails to comply with its obligations under section 50 then the debtor or the person disclosed as debtor in a registration, is entitled to recover the loss or damage that was reasonably foreseeable as liable to result from the failure. Conversely, if a new lender amends or discharges a registration not in accordance with the PPSA then they may be liable for damages. Therefore, it is important that the requirements set out in section 50 are complied with as a person who signs a financing change statement to discharge or amend a registration and who is not authorized to do so by section 50 of the PPSA, is liable to the secured party for loss or damage suffered by the secured party.
It is advantageous for borrowers and new lenders that the PPSA provides a mechanism for discharging old registrations. However, it is important that lenders and borrowers are aware of not only the remedies available but also the requirements involved in using such provisions of the PPSA.
 Personal Property Security Act, RSA 2000, c P-7.
 Ibid at s. 67(1) and 67(2).