British Columbia’s New Securities Transfers Act: Its Impact on Secured Lenders
Lenders who rely on security instruments (including such instruments as share certificates, commercial paper and money market accounts) as loan collateral must consider the effects of recent amendments to the Personal Property Security Act (“PPSA”), or risk impairing their priority position over such assets.
The PPSA amendments, enacted through the passage of the Securities Transfer Act (“STA”) on July 1, 2007, establish new rules for perfecting security interests in and determining priority rights over assets broadly defined as “Investment Property”. Investment Property is a new category of personal property under the PPSA, and it includes certificated and uncertificated securities, security entitlements and securities accounts held by intermediaries.
“Control”, which is the ability to transfer Investment Property without further action by the debtor, is now the best method to perfect a security interest, superseding both possession and registration of a financing statement. The method used to obtain Control will vary depending on the nature of the security and the manner in which that security is held.
The STA contains transitional rules under which secured parties have a four month period (expiring October 31, 2007) to ensure that security interests perfected under pre-STA law remain perfected under the new law. While in most cases the rule changes will not impact the perfection of an existing security interest, lenders should consider whether gaining Control over collateral would be advantageous.