The information needed to register a financing statement in order to perfect a security interest includes not just who the debtor is and what collateral is charged, but also where the debtor is located. The location of a debtor is the jurisdiction in which a security interest in specified kinds of collateral[1] ("Debtor Location Collateral") must be perfected.

Until recently, the British Columbia Personal Property Security Act ("PPSA"), like most equivalent legislation in other provinces across the country, provided that a debtor is located at: its place of business; its chief executive office if it has more than one place of business; or the place of residence of the debtor, if the debtor has no place of business[2]. However, as of June 1, 2019, the test for determining the location of a debtor under the PPSA was changed to a more objective test, which for many debtors that are entities will be the place that the debtor is incorporated or otherwise organized. The changes are discussed in more detail below, but the important thing to note is that in many cases perfection in the jurisdiction identified under the old rules may not be sufficient under the new rules, and new registrations will have to be made to maintain a secured party's perfected status[3].

The new debtor location rules

The new rules determine the location of a debtor based on the type of debtor. Some of the more frequently encountered types of debtors and their locations as determined under the new rules are:

  • Individual - the jurisdiction of the individual's principal residence
  • Provincial corporation - the province in which the corporation was incorporated, continued, amalgamated, or otherwise organized
  • Federal corporation - the jurisdiction in which the registered office or head office of the corporation is located
  • Provincial partnership - the province that is the governing law as stated in the partnership agreement
  • Provincial limited partnership - the province in which the limited partnership was incorporated, continued, amalgamated, or otherwise organized
  • Trustee acting for a trust - the province that is the governing law as stated in the trust instrument, or if there is no governing law then the jurisdiction in which the administration of the trust is principally carried out

There are also rules for determining the location of registered organizations in the United States[4]. Any type of debtor not specified is located in the jurisdiction of its chief executive office, which is not a defined term.

In general, the new rules make it much easier to objectively determine the location of certain debtors, and therefore determine the jurisdiction in which a security interest given in Debtor Location Collateral must be perfected.

Transition

New and different rules raise the question of what happens to existing registrations that were perfected under the old rules. For some existing registrations, both the old rules and the new rules point to the same debtor location and jurisdiction for perfection[5]. In those situations, the existing registration simply has to be maintained and no additional registration is needed. For other existing registrations, the new rules point to a different jurisdiction than the old rules[6]. In those circumstances, a financing statement must be registered to perfect the security interest in the new jurisdiction on the earlier of the date of expiry of the existing registration and June 1, 2024.

There are other fairly complex transition rules that apply in different situations, so advice should be obtained on any security interests that existed before June 1, 2019, whether perfected or not, to make sure they are perfected under the new regime.

Practical Tip – Different rules in different Provinces

The changes to the debtor location rules in the PPSA bring the British Columbia rules in line with the equivalent rules under the Ontario Personal Property Security Act. However, not all provinces have adopted the new rules, which can result in the personal property legislation in different provinces pointing to different jurisdictions in which to perfect[7]. So what's a secured party to do in those circumstances? The answer is to apply the debtor location rules in each of the relevant jurisdictions, and if they point to different jurisdictions, then perfect by registering a financing statement in each of those jurisdictions.

From a practical perspective, it has always been important to know where your debtor is. From a personal property security perspective, given the changes to the debtor location rules in British Columbia, and the possible loss of perfection in those circumstances in which a new registration is required, it is more important than ever to know where your debtor is.

[1] The location of a debtor is relevant to perfecting security interests in certain types of collateral, including intangibles, certain "mobile goods" and non-possessory security interests in instruments, negotiable documents of title, money and chattel paper. It is also relevant to perfection by registration of a security interest in investment property.

[2] When applying these old rules, a security interest in accounts receivable (which are considered Debtor Location Collateral as "intangibles") given by an Alberta company with its sole place of business in British Columbia must be perfected in British Columbia.

[3] Using the example in footnote 2 above, to perfect under the new rules in the PPSA the security interest given by the Alberta company would have to be perfected in Alberta as the debtor's place of incorporation.

[4] For a registered organization under a state, the jurisdiction is the state in which the organization is registered. For a registered organization under the United States of America, the jurisdiction is either (i) the state designated by the relevant United States of America law, (ii) the state designated by the registered organization where authorized by United States of America law, or (iii) the District of Columbia, if (i) and (ii) do not apply.

[5] For example, consider a security interest in Debtor Location Collateral given by a Canadian federally incorporated company, which has numerous places of business (including in British Columbia), its chief executive office in Ontario, and its registered office in Ontario. Applying the chief executive office test under the old rules, the jurisdiction in which to perfect the security interest would be Ontario. Under the new rules, the jurisdiction in which to perfect would also be Ontario, as the place of the debtor's registered office.

[6] Using the example in footnotes 2 and 3 above, an Alberta company with its sole place of business in British Columbia grants a security interest in accounts receivable. Under the old rules, that security interest would have to be perfected in British Columbia as the sole place of business. Under the new rules it would have to be perfected in Alberta as the place of incorporation. If the original financing statement had been registered in British Columbia on May 1, 2019 for a period of five years, the security interest would have to be perfected in Alberta before May 1, 2024 to remain continuously perfected.

[7] For example, an Alberta company with its chief executive office in British Columbia grants to a secured party a general security agreement creating a security interest in all of its present and after-acquired personal property. To perfect that security interest against the company's Debtor Location Collateral, Alberta law would require perfection in British Columbia (as the place of the company's chief executive office) and British Columbia law would require perfection in Alberta (as the place of incorporation). In such case, the secured party would perfect in both jurisdictions.