Chap 23

1. Atousa ----------- ABC LTD 10K TV -----Creditors/Creditors/Creditors. Abc cant pay its creditors.

Trustee of bank0 liquidate all of ABC assets and distribute it to creditors. Atousa owns the TV therefore the 10k TV goes back to Atousa since it doesn’t belong to ABC.

2. Atousa loans not a TV but 10k to ABC to buy one and they have a loan agreement stating abc will pay her back. ABC goes bank0, creditors goes in for the assets. Is Atousa entitled to the TV that was purchased by 10k she funded them? THE Bank0 trustee has right to the TV since they seize all assets and the TV is now an asset but Atousa has no right to the TV. Atousa gets 10/25 X 10K in return since there is a total of 25k in debts.

An alternative would be:

Atousa gets a security agreement which states that should ABC default on the loan she is entitled to the TV and sell it to recover their 10K and if theres profit returns to trustworthy of bank0 . BUT YOU HAVE TO REGISTER YOUR SECURITY WITH THE GOVT.

Another alternative could be:

She could simply look for a guarantor (loan guarantor i.e co signer)

Lender lends 300 k to A, 200 k to B and 500 k to C. A , B and C all have collaterals. Lender then assigns the loan to a corporation and then gets share against a loan (bringing in monthly pymnts). *the flaw movie*

Another type of security is a conditional sale (it could secure it, not a promise). Mr X will buy comp from Mr Y. Laptop is worth a $1000 , Mr X only gives $600 so he gets possession of it but title isn’t transferred to Mr X until full $1000 pymnt is received.

Why do we have security interest?

A) Procedure is faster (no need to go through all the court procedure all you need to show if u do is the security which entitles you to it). B) Most importantly you get Priority over other creditors.

What if another creditor registers a security interest on a loan before you register one against same debtor, who gets it first?

First one who registers is at priority.

How do you know if you registered first?

You go to the registree office to see if someone already registered a security interest. You search first, theres nothing there then you register your security interest, then you search again make sure no other security got registered in meantime and THEN you lend the money to debtor.

Whenever you have a security interest the rules of PPSA applies.

Other ways in which security can arise. If it's a conditional sale you can get security arising.

In a lease you might get a security interest arising.

Situation 1.

A loans $ to B (A give 50k loan and u get back 60 X $1000 from B) - if default take truck/if paid in full B keeps truck.

Situation 2.

Lease : A keeps title to truck and rent the truck to B for a 1000$/m and if B default on any payments u take truck back. At the end of the lease B has option to keep the truck for 1$.

The law says if it's really a finance lease then all u did is create a security interest.

Therefore it means it falls under PPSA rule.

Ex:

Ye rent to Matthew, Matthew pays 1000/month. Matthew has other creditors. If Matthew go bank0 what happens to the car ? Well PPSA law says if YE didn't register the truck as SI all creditors get part of it. If lease is over a year long PPSA can fall therefore register SI.

What other things can be pledged as SI?

Ex: X(dbt)-----Vero(cd)

100K

What will X Co pledge to add up to 100k?

Their account receivables. So if X goes bank0 then Vero should get a piece of paper stating X's debtor will now pay her to cover her 100k. Or even Vero cud say I've got 50k of account receivable due in 60d so I'm gonna sell it to Clayton for 45k since he taking a risk and Vero need the $ today.

Bank-----250K-----Georjo for taco truck.

Bank will ask for him to pledge everything the trucks the taco under GSA( General Security Agreement).

Now Gergjo inc his company first then goes to the bank.

What might the Bank ask for in exchange? Personal Guarantee. If the bank realize upon security (seize through the collateral)

GSA

On day 1 Georjo signs the GSA but has nothing, on day 2 gets the truck.

So can you give a SI to something you don't own yet?(Can bank goes over it if Georjo goes Bank0)

Yes because PPSA says so. *p.589*

The GSA allow for Georjo to carry on business as usual :

Customers receive collateral free of SI-if you bought 100 tacos as a Cx from Gergjo and he went Bank0, u as the Cx is free of collateral the bank can't come after you.

What happens if Georjo sells the truck to Danielle. What's the risk for Danielle?

If Georjo business default, the bank can go grab the asset which is the truck from Danielle. Because the PPSA gives us the right to the truck.

What should have Danielle done?

Do a search on the truck situation first.

What kind of GVT office do u register your SI?

Ontario GVT, so if Georjo has trucks in each province means do a search and register SI in each province.

Bank act section 427 let bank cover all assets across Canada in one shot.

Are there any exceptions?

Nancy lands 100k to Mr X- debtor. Mr X owns resto so uses it for equipment and he pays rent to landlord for the resto. He gave a GSA to Nancy. X defaults on rent and pymt to Nancy, who gets the equipment?

The landlord since he has the right of distress. Provided landlord has followed all legal procedures can lock X out if premises seize wtv is inside the premises sell it and give it to Bank trustee.

What if Mr X also has 20k in bank account, can Nancy take that?

Landlord only has access to what's within the premises so can't touch his bank acct so yes Nancy has right to it.

What if X has a car that was purchased with that loan from Nancy and uses it for his resto business took the car to Raquel the mechanic who fixed the car but never got paid, what happens with car if X goes bank0?

Raquel has a lien on the car she can sell it and give excess to bank trustee

Since there is a storage lien act that gives her right to do so.

Diff between lien and SI?

SI: Arises by agreement.

Lien: Arises by operation of law.

In general GSA gives you first right to collection on collateral unless right distress, deam trust funds(withheld taxes money from bank) or a lien.

Security interest good against 3rd party if:

1) Attachment:

Luka lends 100k to Luli -she owns a truck and pledged it.

How do we know if a SI exists? *p594*

The debtor signs description of collateral or creditor takes possession of collateral and Creditor gives value to debtor and Debtor has rights in collateral

Luli signed agreement with Luka but also with Thomas and she pledged same truck. Who wins the truck ?

Who ever registered SI first

Luka registered SI first , Thomas (2nd creditor) finds out Luka was first and gets bigger return of interest since he has more risk. However Thomas should still register since Luli could get a 3rd creditor.

2) Perfection:

Perfect means to get as far ahead in line as possible.

3 Rd debtor Yoda finds out and register SI and perfects it.

A perfected and registered SI defeats all unperfected registered SI and amongst perfected SI it's by order of perfection. *Any unperfected register then defer in order of attachment *

Who's still in top of perfected SI?

3 exceptions: Landlord right of distress, deam and lien act.

What can you do if a creditor (X) isn't happy with another creditor being ahead of them (K) in SI order?

*p.586* footnote

Subordination agreement: X puts a 100k in line to guarantee that the co won't go bank0 in exchange of K first place.

What if X and K are lending 250k to ABC at same time and agree if co goes bank0 they agree to share equally?

There can only be one #1, so either X or K. But what they could do is sign a "pari-passu" agreement which means no matter who registers it first this states they agree to share it at same time if co goes bank0.

Bank loan 500k to James, james gave back GSA to bank which perfected SI and ranked #1. James now struggling so Atousa gives him a loan at lower rate and buy 2 trucks. James goes bank0 what happens with 2 trucks?

Bank takes everything even if trucks purchased after GSA since it gives them the right to all assets period.

*Exception*

p.596 PMSI (only for specific assets)

Atousa financed the purchased of 2 trucks, in such case Atousa ranks higher than the bank.

What's the process of PMSI?

Atousa has to perfect by filing with 15 days of or before debtor getting possession.

What happens to a SI if assets gets transferred?

Dentist A sells all equipment to Dentist B and assets to dental practices. 1Mill transaction. Dentist B realizes after a search bank has a GSA for 150 k on his business. What does dentist B does now?

Lawyer B says I give you Lawyer A the money in trust and Lawyer undertakes tht he will take the mill pay the 150k GSA owed to bank and then give the money to dentist A. This is called escrow.

Secured creditor taking over a collateral have to give 15 days notice to debtor and others with interest and cannot enforce it, if needed get a court order and have to ensure if needed collateral sold at fair value (ex, through auction)

Can secured party keep collateral ?

Accepted in full satisfaction of debt if debtors and other in interests of it agree.

When can debtor get collateral back?

Supplier sold equipment to Larry for 10 installments of $1000. Larry pays first 2 installments but default on 3rd supplier gets the equipment back.

How can Larry gets equipment back?

If Larry pays off the remaining 5 installments. This is called redeeming.

Store gives computer to student for 3000$ student pays up to 2300$ can store seize computer back?

No, in consumer transaction if consumer paid 2/3 of the item the store don't have the right to seize it but they can still sue you. This is called reinstate.

Guarantor relived of liability if increase in risk was not consented to (eg son increased his loc by 10k, guarantor only liable for initial amount not +increase)