O debtor, where art thou? Updates to the debtor location rules under Alberta’s Personal Property Security Act

September 23, 2024

Alberta's Personal Property Security Act (Alberta PPSA) was amended effective as of June 1, 2024, to incorporate a number of changes initially proposed by the Canadian Conference on Personal Property Security Law and subsequently endorsed by the Alberta Law Reform Institute.^[1]

Among other things, changes were made to the debtor location rules that determine the correct jurisdiction in which to register a security interest in intangibles (like accounts payable) and highly mobile goods (like motor vehicles and trailers) that are held by a debtor as equipment or inventory for lease.^[2]

The new rules are intended to simplify the process for determining the location of business debtors. Under the old rules, business debtors were deemed to be located in the jurisdiction in which they maintained their place of business or, if they had more than one place of business, their chief executive office.

The new rules seek to eliminate the need for secured parties to make a fact driven and context-specific determination as to where a particular debtor maintains its principal place of business by deeming most Canadian and American corporations and other organizations to be located in the province, territory or state in which they are incorporated or otherwise organized. They also deem all individuals to be located in the jurisdiction in which their principal residence is located, rather than in different places depending on whether they carry on a business.

These changes bring Alberta's debtor location rules into general alignment with the rules in force in Ontario, British Columbia and Saskatchewan.^[3] They also bring Alberta's debtor location rules into general alignment with those used in the United States.

Application of the new rules

The new debtor location rules apply to the creation, validity, perfection and priority of security interests arising on or after June 1, 2024.^[4]

The new rules also govern the perfection, effect of perfection and priority (but not the validity) of security interests arising before June 1, 2024, with two key exceptions.^[5]

First, there is a transition period for existing registrations. Pre-existing security interests that were perfected under the old rules will continue to be perfected under the new rules until December 31, 2024 (or if their perfection under the old rules would have lapsed before December 31, 2024, that date).^[6]

Second, the old rules will continue to apply for the purposes of determining the law governing the priority of a pre-existing security interest in relation to any other pre-existing security interest.^[7] Priority competitions between competing security interests registered before June 1, 2024, will, as a result, continue to be determined by the old rules.

New debtor location rules

The new rules for determining a debtor's location are set out under Section 19 of the Personal Property Security Regulation.^[8] Different rules apply depending on whether the debtor is an individual or a corporation or other type of organization.

Individuals

The location of individual debtors no longer depends on whether they maintain a place of business (or not), as was the case under the old rules. All individuals, including individuals with a place of business, are now deemed to be located in the jurisdiction in which their principal residence is located.^[9]

Example: A sole proprietor with a business in Beaverlodge, Alberta, a principal residence in Dawson Creek, British Columbia and a vacation home in Lake of the Woods, Ontario is located in British Columbia for the purposes of the Alberta PPSA.

Provincial and territorial corporations and organizations

Corporations and other organizations incorporated, continued, amalgamated or otherwise organized under a law of a province or territory of Canada by the filing of a record with or the issuance of a record by the province or territory that is available to the public for inspection are deemed to be located in that province or territory.^[10]

This rule captures corporations organized under a provincial or territorial Business Corporations Act. It also captures limited partnerships formed by the filing of a limited partnership certificate under provincial or territorial partnership legislation.

A similar rule applies to corporations and other organizations formed by the enactment of provincial or territorial legislation, like crown corporations. Such entities are deemed to be located in the province or territory of their enacting legislation.^[11]

Example: A corporation incorporated under Saskatchewan's Business Corporations Act is located in Saskatchewan for the purposes of the Alberta PPSA, even if the corporation's chief executive office and primary business operations are all located in Alberta.

Example: A limited partnership formed under British Columbia's Partnership Act is located in British Columbia for the purposes of the Alberta PPSA, even if the partners are all Alberta corporations.

Federal corporations

Corporations incorporated, continued, amalgamated or otherwise organized under a federal law of Canada by the filing of a record with or issuance of a record by the federal government that is available to the public inspection or by the enactment of federal legislation are deemed to be located in the jurisdiction where the registered or head office of the corporation is located.[^12]

A federal corporation's registered or head office is the office designated by the legislation under which the corporation is formed or, if the legislation is silent, as designated in the corporation's articles or other constating documents or, if both the legislation and the corporation's constating documents are silent, as designated in the corporation's bylaws.

Example: A corporation incorporated under the Canada Business Corporations Act whose articles of incorporation list the corporation's registered office as being in Saskatoon, Saskatchewan is located in Saskatchewan for the purposes of the Alberta PPSA.^[13]

US corporations and organizations

Corporations or other organization formed or organized under U.S. state or federal law are deemed to be located in the state they are organized, if organized under state law, or in the designated state, if organized under federal law.^[14]

Example: A corporation organized under Delaware's General Corporation Law is deemed to be located in Delaware for the purposes of the Alberta PPSA.

Trusts

A special rule applies where the debtor is a trustee acting for a trust that only has one trustee. If the trustee is an individual with a principal residence in Canada, the trustee is deemed to be located in the province or territory where the individual has their principal residence. If the trustee is a Canadian corporation or other organization, the trustee's location is determined by the same rules that apply to Canadian corporations and other organizations more generally.^[15]

If a trust has multiple trustees, or does not fit within the special rule applicable to trusts with a single trustee, the residual rule described below will apply, unless the trust falls under the rules applicable to organizations organized under Canadian provincial or territorial law or U.S. state or federal law, in which case those rules will apply.

Residual rule

If none of the other rules apply, a debtor is deemed to be located where their place of business is located, if they only have one place of business, or at their chief executive office, if they have more than one place of business.^[16] As defined in the Personal Property Security Regulation, a debtor's "chief executive office" means "the place from which the debtor manages the main part of its affairs."^[17]

Example: A company formed under the United Kingdom's Companies Act 2006 will be deemed to be located in the jurisdiction in which its chief executive office is located for the purposes of the Alberta PPSA, as none of the other debtor locations rules apply to provide otherwise.

Key takeaways

As a result of these changes, secured parties should:

1. Review their existing registrations and, to the extent required, make additional registrations to comply with the new rules as soon as possible (and in any event, by the end of this year). If a secured party fails to do so, its existing security interests may become unperfected and it may lose its priority position to new registrations made after June 1, 2024.
2. Review their internal processes and documentation to ensure the new rules are properly integrated into their day-to-day business. For example, a sole proprietor should confirm, in writing, their principal residence in addition to providing their business address and, for each corporate debtor, a corporate search should be obtained at the time it enters into a security agreement.

Contact Us

If you have any questions about the new debtor location rules and how they may affect your business, please reach out to the authors, Rani L. Berg and Aaron Aitken.

[1] Canadian Conference on Personal Property Security Law, Proposals for Changes to the Personal Property Security Acts, 2017 CanLIIDocs 3526, <https://canlii.ca/t/sl12>; Alberta Law Reform Institute, Personal Property Security Law, Alberta Law Reform Institute, 2021 CanLIIDocs 2353, <https://canlii.ca/t/tcpx>.

[2]Personal Property Security Act, RSA 2000, c P-7 ("AB PPSA"), s. 7; Personal Property Security Regulation, Alta Reg 95/2001 ("AB PPSR"), s. 19.

[3] There are still some differences between the four provinces. In particular, Alberta and Saskatchewan have taken a different approach with respect to the location of general partnerships and trusts than Ontario and British Columbia.

[4] AB PPSR, s. 68.1(3), (7).

[5] AB PPSR, s. 68.1(2), (3) and (7).

[6] AB PPSR, s. 68.1(5).

[7] AB PPSR, s. 68.1(10).

[8] AB PPSA, s. 7(3); AB PPSR, s. 19.

[9] AB PPSR, s. 19(3)(a).

[10] AB PPSR, s. 19(3)(b)(i).

[11] AB PPSR, s. 19(3)(b)(ii).

[12] AB PPSR, s. 19(3)(c).

[13] As set out under s. 19 of the Canada Business Corporations Act, RSC 1985, c C-44, "[a] corporation shall at all times have a registered office in the province in Canada specified in its articles."

[14] AB PPSR, s. 19(3)(d), (e).

[15] AB PPSR, s. 19(3)(f).

[16] AB PPSR, s. 19(3)(g).

[17] AB PPSR, s. 19(1)(a).