1 Issues Arising When a Company is in Financial Difficulties -

1.1 How does a creditor take security over assets in Canada?

Personal Property -

Personal Property Security Acts (“PPSA”) in force in all of Canada’s common law provinces and territories govern the creation and enforcement of security in personal property. Under the PPSA, before a security interest can be enforced against third parties, the security interest must have “attached” and be “perfected”. Attachment, within the meaning of the PPSA, requires three conditions:

a) a security agreement signed by the debtor, or possession of the collateral by the secured creditor;

b) “value” or consideration sufficient to support a simple contract must be given; and c) the debtor must have rights in the collateral.

Once the security interest has “attached”, it becomes “perfected” under the PPSA by:

a) registration of a financing statement in a computer based registration system administered by the provincial government; or

b) the secured party obtaining possession of the collateral.