A banker asked us: Re-registering PPSA registrations after they have lapsed

Q: I just found out from my back office that the only PPSA registration the bank holds against our borrower expired without having been renewed. Is it possible for the bank to file a late renewal and regain its first priority position against the borrower's other secured creditors?

A: Yes, there are ways for a secured creditor in certain circumstances to regain the priority position associated with an expired or lapsed registration. In British Columbia, if a BCPPSA registration expires, lapses or is otherwise discharged, a secured creditor must re-register within 30 days in order to maintain the priority of the original registration over existing subordinate perfected security interests.[1] However, the re-registered financing statement is subordinate to any existing subordinate perfected security interests that secure advances made or agreed to be made after the discharge and before the re-registration. In addition, the re-registered financing statement is subordinate to new registrations made after the discharge and before the re-registration.[2] The new financing statement must state that the registration is a re-registration under section 35(7) of the BCPPSA and note the registration number of the lapsed or discharged registration.[3]

In Ontario, a lapsed or discharged OPPSA registration is deemed to have been continuously perfected when re-registered under that Act. However, such re-registration is ineffective as against another person that acquired rights in all or part of the collateral during the period when the security interest was unperfected.[4] Unlike in British Columbia, there is no time limit for re-registration of a lapsed or discharged registration. The new financing statement should restate all of the information and collateral classifications in the original registration and will typically contain a statement that it is a reperfection of the original registration (with a reference to the original registration number).[5] [6]

While re-registration of a financing statement may provide secured creditors with partial protection, there is no "grace" period under the PPSA. A security interest is either perfected by at least one method under the PPSA or it is not.[7] If a security interest is only perfected by registration and the registration expires, lapses or is otherwise discharged then, unless the circumstances as set out above apply, the date of the re-registered financing statement is the relevant date of perfection for determining priorities under the PPSA regime.

It is easy to understand this rationale. For example, if an innocent third party creditor makes a credit decision on the basis of a clear PPSA search, they should be entitled to the apparent priority position represented by that clear PPSA search.[8]

Given the potential for the re-ordering of intended priorities as discussed above, secured parties may wish to enter into clear priority agreements with competing material secured creditors in order to confirm the state of priorities as between them notwithstanding the current state of any particular PPSA registrations. In addition, secured parties may wish to conduct searches of debtors on a regular basis to ensure key registrations have not inadvertently been discharged, and diarize and create reminders to extend expiration dates well in advance of a registration's stated expiry date. Together, these techniques will minimize the risk of a secured party unintentionally losing its intended priority.