Personal Property Registrations: Correctly Registering Individual Debtors Names (and what happens if there is an error)
In discussing the level of specificity that the Personal Property Security Act (the “PPSA” or “Act”) demands, then New Brunswick Appellate Court Justice, Joseph Robertson, said it best when he candidly wrote at paragraph 67 of GMAC Leaseco Ltd. v. Moncton Motor Home & Sales Inc. (Trustee of) 2003 NBCA 26:
The legislation lays down precise rules to be followed when identifying debtors. Everyone is aware that there are limitations on the ability of computer search programs to detect close or inexact matches, and, therefore, the need for accuracy is paramount.
Those practicing in the areas of commercial law, banking, finance, and occasionally in real property law, will encounter the Personal Property Registry System (the “PPRS”). The PPRS is an electronic database mandated by each jurisdiction’s PPSA as the primary method for lenders to secure and provide public notice of their interest in a debtor’s personal property and for third parties to search prospective debtors to assess their creditworthiness.
The subject of this article is the PPRS active in the Atlantic Provinces with particular references to the Prince Edward Island Act. Care should be taken to review each jurisdiction’s PPSA and its regulations to ensure compliance with applicable law.
The focus of this article is the, often taken-for-granted, perfection step of inputting a debtor’s name when registering an interest in the PPRS. This data entry sounds simple enough, but even a small error can be fatal to a creditor’s secured interest. An error in a debtor’s name (e.g. incorrect spelling, omitting a middle name, inputting a commonly used name instead of a legal name) can result in the loss of the creditor’s priority in collateral as against third parties, or the loss of the interest in the collateral altogether.
General Financing Statement Requirements
Section 43 of the Act authorizes and enumerates a creditor’s registration responsibilities for filing entries in the PPRS. Registrations are completed via an online form, known as a financing statement, used for entering the prescribed data.
The regulations distinguish between individuals and enterprises. Enterprises include partnerships, body corporates and similar associations. Individuals are people in their own right and sole proprietorships. Separate rules apply to the registration of a financing statement (including particular data entry sections in the online form) as they relate to individuals and enterprises. This article focuses on individual debtor names to demonstrate the importance of inputting the correct information – however this principle applies to all registration data entered in the PPRS.
Individual Debtor Name Requirements
The general regulations enumerate the data requirements for inputting debtor names. Beyond what is prescribed, it is also recommended that registrants input the date of birth of the debtor in the financing statement to differentiate from other registrations, however this is not required. The manner of inputting individual debtor names follows:
The registrant shall enter the last name followed by the first name, followed by the middle name, if any. Example: Jane Elizabeth Smith shall be entered: Smith | Jane | Elizabeth
Where the debtor has more than one middle name (or a hyphenated middle name), only input the first of the middle names. Example: Jane Elizabeth Lindsay Smith shall be entered: Smith | Jane | Elizabeth.
Where the individual debtor consists of only one name, the registrant shall enter that name in the field for entering the last name. Example: Cher shall be entered Cher.
The regulations also prescribe how a creditor shall identify a debtor for purposes of the data entry. Subsection 19(5) requires where an individual is born is Canada, the individual’s birth certificate shall be used. Where no birth certificate is available, then the Canadian passport, social insurance number, or foreign passport shall be used. Subsections 19(5)(c) through (g) provide a hierarchy of alternatives where the individual is a non-resident or the previously mentioned identifications are not available.
Importantly, subsection 19(7) provides that a creditor may enter other names that the debtor may be known or reasonably expected to be known by. For example, it is advised that “William Smith” also be entered as “Bill Smith”. This will further insulate secured parties from improper or competing registrations and resulting disputes.
Errors and Omissions in Individual Debtor Names
The PPSA provides a saving provision for errors and omissions, however it can only be relied on narrowly. Subsection 43(7) and (8) of the Act states:
43(7) The validity of the registration of a financing statement is not affected by any defect, irregularity, omission or error in the financing statement unless the defect, irregularity, omission or error is seriously misleading;
43(8) a registration is invalid if there is a seriously misleading defect, irregularity, omission or error in the name of any of the debtors…;
The operative language, seriously misleading, is determined on an objective basis, in other words, whether the defect would have seriously misled a reasonable user of the PPRS. A determination of whether an error in a debtor name invalidates the registration is context dependent. The PPRS has the capacity to disclose exact and inexact matches. With that context and system capacity in mind, where a name is searched, as prescribed, by a prospective creditor and either:
- no results are identified, this will almost certainly invalidate the registration; or
- only close matches are identified, then a second determination must be made against the following non-exhaustive conditions, including whether: (i) the error is minor; (ii) the particulars of the result otherwise match (date of birth, serial number, address of debtor, etc); or (iii) the search results are not lengthy, then, upon an evaluation of these contextual factors, the error may be determined to not be seriously misleading, and the registration remain valid.
For example, where the debtor’s name is common such as “John Alexander MacDonald”, and the registrant input “John MacDonald”, the omission of a middle name will almost certainly be seriously misleading and the registration deemed invalid resulting from an inconclusive search of the PPRS.
Where however a debtor’s name is uncommon, the balance of the financing statement information is correct, the data error is minor, and there are few results demanding review by a searcher, this may result in the registration being deemed not seriously misleading and therefore remain as a valid secured interest.
Mitigating Improper Registrations
In the event an error in a PPRS registration is discovered by a secured creditor, the creditor should immediately file a financing change statement in the PPRS to rectify the error in the original financing statement. Section 44 of the Act authorizes a party to amend a registration in this manner, however an amendment is only effective from the time that the financing change statement is registered.
A financing change statement will not provide a perfected registration against competing secured creditors (e.g. a trustee in bankruptcy, or a secondary lender) who perfected their interest, or had a resulting interest by operation of law, in the interim period between the original registration and the amended registration. However, the change statement will provide priority against competing secured interests which arise after the amended registration.
Given the significant risks inherent in improperly filing PPRS registrations, care should be taken to properly identify debtors and file information in accordance with the PPSA as particularly outlined in the regulations. Time and care spent reviewing and confirming PPRS filings is indeed paramount to ensuring perfected securities.
The following is a reference for secured parties when inputting individual debtor names in a financing statement. Please review the general regulations of the Act which contains all data requirements when completing a financing statement including debtor names, term of registration, and descriptions of collateral (including serial numbered goods).
- Obtain a copy of the individual’s birth certificate (if a Canadian citizen), or equivalent, to confirm their legal name for registration purposes. If no birth certificate is available, obtain a copy of the individual’s passport or Social Insurance Number. If none of these are available, or if the individual is a non-Canadian citizen, consult the regulations to confirm the prescribed proof of identification. If the foregoing does not apply, obtain two of either a motor vehicle license, motor vehicle registration, or medical insurance card.
- Obtain confirmation of the individual debtor’s current address for entry into the financing statement.
- Enter the individual’s date of birth to further differentiate the PPRS registration as against competing registrations.
- If the individual goes by a name that is not their legal name, or has a legal name that has commonly known alternatives (e.g. William and Bill; Robert and Bob; Elizabeth and Betty or Liz; etc.) input those other commonly known names or alternatives into the financing statement along with the legal name.
- If an individual has two middle names or a hyphenated middle name, input only the first middle name or the first name before the hyphen as applicable.
- Fully review the data entered prior to submitting the PPRS registration.
- Obtain the Verification Statement provided by the PPRS following registration. Review the Verification Statement to ensure the data is correct, including the name, address, term of registration, serial numbers, and description of collateral (and location of collateral if applicable).