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INTRODUCTION
Purpose and currency of checklist. This checklist is designed to be used with the
CLIENT IDENTIFICATION, VERIFICATION, AND SOURCE OF MONEY (A-1), CLIENT FILE
OPENING AND CLOSING
(A-2), and SECURITY AGREEMENT DRAFTING (B-13) check-
lists. It is designed for counsel representing a lender or other party taking a security
interest in personal property from a debtor. Consider whether a collateral mortgage
on land is required. This checklist is current to September 1, 2023.
Key instructions for use of checklist:
• Use of debenture. Where a debenture is being used (e.g., in certain multi-jurisdic-
tional transactions) instead of a general security agreement, the items marked
“(DEB)” should be considered. For the most part, a debenture and a general secu-
rity agreement are not markedly different, except that a general security agreement
charges only personal property and may include a floating charge on land, whereas
a debenture may charge both personal and real property by way of fixed and float-
ing charges. A debenture contains a promise to pay, whereas a general security
agreement usually does not.
• Fixtures and crops. Personal Property Security Regulation, B.C. Reg.
227/2002, s.
1(3) to (5), should be considered in the context of a charge on land,
fixtures, or crops. The intent of these provisions is to ensure that fixtures and
crops are included within the definition of personal property where the fixtures
and crops are charged in conjunction with other personal property, but not
where the fixtures or crops are charged in conjunction with an interest in the
land to which the fixtures or crops are affixed. The wording of the sections,
however, is complex and should be carefully reviewed.
New developments:
• Enhanced scrutiny under the Investment Canada Act, R.S.C. 1985, c. 28 (1st
Supp.). On April 18, 2020, in response to COVID-19, the Minister of Innova-
tion, Science and Industry (the “Minister”)
announced a new policy under
which foreign investments in Canadian businesses that are related to public
health or involved in the supply of critical goods and services will be subjected
to additional scrutiny.
The policy targets foreign investments in Canadian busi-
nesses that are related to public health or involved in the supply of critical goods
and services. On October 28, 2022, the Minister announced strategic policy sur-
rounding foreign direct investment in Canadian Critical Mineral sectors in
response to the Critical Minerals List announced on March 11, 2021. Under the
Investment Canada Act, the Minister must approve proposed acquisitions of
control from foreign investors, including state-owned entities, where the value
of the Canadian business is above the defined threshold. An application by a
foreign state-owned entity will only be approved on an exceptional basis. Fur-
thermore, effective August 2, 2022, a new filing option gives non-Canadian
investors the ability to obtain pre-implementation regulatory certainty with re-
spect to a national security review of investments that do not require a filing
under the Act. See the full policy statement and voluntary filing information
.
The Minister also released a policy statement regarding net benefit reviews and
national security reviews involving Russian entities and/or Russian investors to
heightened scrutiny due to the Ukraine crisis, which can be accessed at
https://ised-isde.canada.ca/site/investment-canada-act/en/investment-canada-
act/policy-statement-foreign-investment-review-and-ukraine-crisis.
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• Electronic meetings. On May 20, 2021, the majority of the provisions of the
Finance Statutes Amendment Act (No. 2), 2021
, S.B.C. 2021, c. 14 came into
effect by Royal Assent. The Act amends the Business Corporations Act, S.B.C.
2002, c. 57 (the “BCA”), as well as the Cooperative Association Act, S.B.C.
1999, c. 28; Financial Institutions Act, R.S.B.C. 1996, c. 141; and Societies Act,
S.B.C. 2015, c. 18 to expressly permit virtual AGMs and board meetings. The
legislation now provides that, unless the memorandum or articles provide oth-
erwise, a company may hold its AGM by telephone or other communications
medium if all shareholders and proxy holders attending the meeting are “able
to participate in it”. This replaces the previous requirement that shareholders
and proxy holders be “able to communicate with each other”. The rules further
provide that if a company holds a meeting of shareholders that is an electronic
meeting, the company must “permit and facilitate participation in the meeting”.
Companies should consider whether they may want to require in-person meet-
ings (which will now require an explicit restriction on holding an AGM by
telephone or other communications medium in the company’s articles).
• Arbitration Act. The Arbitration Act, S.B.C. 2020, c. 2, came into force on Sep-
tember 1, 2020. It is strongly recommended that practitioners review the
legislation prior to drafting or revising arbitration clauses in agreements.
• Proposed amendments to the Investment Canada Act, R.S.C. 1985, c. 28 (1st
Supp.). On December 7, 2022, the Minister introduced amendments to the In-
vestment Canada Act to specifically address national security concerns. The bill
is currently at Second Reading in the House of Commons. The amendments, if
passed,
include: new filing requirements in prescribed business sectors; exten-
sions on the national security review of investments; potential conditions on
investments; and required undertakings to address national security concerns.
• Land Owner Transparency Act. The Land Owner Transparency Act, S.B.C.
2019, c. 23 (the “LOTA”) came into
force on November 30, 2020 (except for
certain specified provisions that came into force on April 30, 2021). The LOTA
includes the Land Owner Transparency Regulation, B.C. Reg. 250/2020, also
made effective November 30, 2020. The LOTA requires a transparency decla-
ration to be filed in the new Land Owner Transparency Registry (the “LOTR”)
any time an application is made to register or transfer an interest in land under
the Land Title Act, R.S.B.C. 1996, c. 250. The LOTR will be administered by
the LTSA. A reporting body under the LOTA—which includes most corpora-
tions, trusts, and partnerships, subject to limited exemptions—will have to file
a transparency report upon registration and any time there is a change in interest
holders or beneficial owners, even if legal title is not transferred. For further
information, see the Land Owner Transparency Registry website and also the
course presentation and materials by S. Carter, R. Danakody, and C.R. Mac-
Donald, “Land Title and Survey Authority of British Columbia: Land Owner
Transparency Registry”, in Residential Real Estate Conference 2020 (CLEBC,
2020), and by R. Danakody and T. Norman, “Land Owner Transparency Reg-
istry (LOTR)” in Real Estate Development Update 2021 (CLEBC, 2021),
available through CLEBC Courses on Demand.
• Transparency register. The operative provisions of the Business Corporations
Amendment Act, 2019,
S.B.C. 2019, c. 15 came into force on October 1, 2020
(B.C. Reg. 77/2020). The Act requires private companies incorporated under
the BCA to create and maintain a “transparency register” of information about
“significant individuals”. Individuals will be considered “significant individu-
als” if: they directly or indirectly own, or indirectly control 25% or more of the
issued shares of the co
mpany or shares that carry 25% or more of the voting
rights of the company, or they are able to exercise rights or influence, directly
or indirectly, that would result in the election, appointment or removal of the
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majority of the company’s directors. If two or more individuals meet the above
criteria by jointly holding the prescribed interest or right, then each will be
deemed a “significant individual”. Similarly, two or more individuals who are
acting in concert,
or who meet the definition of “associate” in s. 192(1) of the
BCA, must add their interests together. If the group meets the above criteria, the
company must list every member of the group as significant individuals in its
transparency register. The transparency register must contain the following in-
formation for each significant individual: full name, date of birth, and last
known address; whether the individual is a Canadian citizen or permanent res-
ident of Canada and, if not, a list of every country of which the individual is a
citizen; whether the individual is a resident of Canada for tax purposes; the date
on which the individual became or ceased to be a significant individual; a de-
scription of how the individual meets the definition of a significant individual;
and any further information that may be required by regulation. Access more
information at
www2.gov.bc.ca/gov/content/employment-business/business/
bc-companies/transparency-register.
• Exemptions on additional property transfer tax on foreign entities. The
Property Transfer Tax Regulation, B.C. Reg. 74/88, provides for relief, in cer-
tain circumstances, from the additional 20% property transfer tax on transfers
of residential property in the Metro Vancouver Regional District, Capital Re-
gional District, Regional District of Central Okanagan, Fraser Valley Regional
District, and Regional District of Nanaimo to “foreign entities”. Effective June
1, 2020, see s. 22 for the “Exemption for general partner or bare trustee of lim-
ited partnership”. As of March 11, 2021, a general partner or bare trustee of a
limited partnership has up to six years to apply for a refund of the tax paid if
they failed to apply for the exemption on the registration date (see s. 23). See
also ss. 17.1 to 20 for the exemption for a foreign national who has confirmation
as a worker under the Provincial Nominee Program, and s. 21 regarding the
refund of the extra tax paid by a transferee who became a Canadian citizen or
permanent resident within one year of the registration date.
Of note:
•
Aboriginal law. Special considerations apply to security agreements pertaining to
“reserve” lands or the personal property belonging to a First Nation or Indigenous
person (pursuant to the Indian Act, R.S.C. 1985, c. I-5). The Framework Agree-
ment on First Nation Land Management (the “Framework Agreement”) was
ratified as the central authority by the Framework Agreement on First Nation Land
Management Act, S.C. 2022, c. 19, s. 121, which came into force on December 15,
2022. The Framework Agreement recognizes First Nations’ inherent right to gov-
ern their lands, and signatory First Nations assume the administration and law-
making authority over their lands. If a security agreement involves reserve lands
(pursuant to the Indian Act
), or personal property situated on a reserve or on lands
subject to a treaty, consider seeking advice from a lawyer who has experience in
Aboriginal law matters. Further information on Aboriginal law issues is available
on the “
Aboriginal Law” page on the “Practice Areas” section of the Continuing
Legal Education Society of British Columbia website (www.cle.bc.ca) and in other
CLEBC publications.
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• Money laundering—companies, trusts, and other entities. The prevalence
of money laundering in British Columbia (particularly in the area of real estate)
continues to be a concern. The provincial government established the Commis-
sion of Inquiry into Money Laundering in British Columbia, which was led by
Austin Cullen J. as the commissioner. The Cullen Commission’s final report
was publicly released on June 15, 2022.
For more information on the Cullen
Commission, and the link to the full report, see
LAW SOCIETY NOTABLE
UPDATES LIST (A-3). In addition, consult the Law Society’s resources related to
anti-money laundering:
https://www.lawsociety.bc.ca/priorities/anti-money-
laundering/.
As a means of laundering money, criminals use ordinary legal instruments,
(such as shell and numbered companies, bare trusts, and nominees) in the at-
tempt to disguise the true owners of real property, the beneficial owners. These
efforts can be hard to detect. As such, lawyers must assess the facts and context
of the proposed retainer and financial transactions. Lawyers should be aware of
red flags, and if a lawyer has doubts or suspicions about whether they could be
assisting in any dishonesty, crime, or fraud, they should make enough inquiries
to determine whether it is appropriate to act (BC Code rules 3.2-7 and 3.2-8 and
Law Society Rules 3-103(4), 3-109, and 3-110). See the resources on the Law
Society’s Client ID & Verification resources webpage such as the Source of
Money FAQs, Risk Assessment Case Studies for the Legal Profession in the
context of real estate, trusts, and companies, and the Red Flags Quick Reference
Guide. Also see the Risk Advisories for the Legal Profession regarding real
estate, shell corporations, private lending, trusts, and litigation; and “Forming
Companies and Other Structures—Managing the Risk” (Benchers’ Bulletin,
Spring 2021); and the Discipline Advisories including country/geographic risk
and private lending. Lawyers may contact a Law Society practice advisor at
and Law Society Rules and obtain guidance.
• COVID-19 pandemic. Counsel should keep apprised of developments related
to COVID-19 (and response measures) that may affect transactions. Note that:
o The Land Title Survey Authority will retire temporary COVID-19 prac-
tice changes under the Land Title Act on September 30, 2023, which
include remote witnessing of affidavits for use in land title applications.
Further information may be accessed at
https://ltsa.ca/covid-19-re-
sources/.
o Counsel conducting due diligence searches must be mindful of the im-
pact of the COVID-19 pandemic on the due diligence process. Response
times for search requests may be delayed, and accordingly, such delays
should be accounted for in the due diligence timeline. Counsel should
be aware that search results may not disclose certain actions, fines, lev-
ies, or administrative penalties that have been delayed but are otherwise
permitted to be filed or issued beyond the typical limitation period.
• Additional resources. For more information about security agreements, see
British Columbia Personal Property Security Act Practice Manual (especially
the
SECURED TRANSACTION checklist) (CLEBC, 1995–); Due Diligence Desk-
book (CLEBC, 1994–); Real Estate Financing: Annotated Precedents
(CLEBC, 1994–); Priorities—2013, course materials (CLEBC, 2013); Priori-
ties—2009, course materials (CLEBC, 2009); Advising British Columbia
Businesses (CLEBC, 2006–); and British Columbia Creditors’ Remedies: An
Annotated Guide, 2nd ed. (CLEBC, 2020–).
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• Law Society of British Columbia. For changes to the Law Society Rules and
other Law Society updates and issues “of note”, see LAW SOCIETY NOTABLE
UPDATES LIST
(A-3). Note in particular the commentary on fraud prevention,
bank holds on trust funds, risks of private lending, and all other matters that
may be relevant to loan transactions.
CONTENTS
1. Initial Contact
2. Initial Interview
3. After the Initial Interview
4. Preparing the Documents
5. Drafting the Security Agreement
6. Closing the Transaction
7. Closing the File
CHECKLIST
1. INITIAL CONTACT
1.1 Arrange the initial interview.
1.2 Ask the client to bring to the initial interview all relevant information (e.g.,
a copy of the commitment letter, internal memoranda, etc.). Find out the
full names and addresses of the creditor, debtor, and guarantors. Check for
trade names, business names, and previous names.
1.3 Conduct a conflicts of interest check. Refer to the CLIENT FILE OPENING AND
CLOSING
(A-2) checklist.
1.4. Confirm compliance with Law Society Rules 3-98 to 3-110 for client iden-
tification and verification and the source of money for financial
transactions. Complete the CLIENT IDENTIFICATION, VERIFICATION, AND
SOURCE OF MONEY
(A-1) checklist. Consider periodic monitoring require-
ments (Rule 3-110).
2. INITIAL INTERVIEW
2.1
Discuss the terms of your retainer and the calculation of your fee. Refer to
the CLIENT FILE OPENING AND CLOSING (A-2) checklist.
2.2 See item 1.2 regarding identifying other parties. Obtain the names and ad-
dresses of the other parties’ counsel. Clarify your role in the transaction and
that of other advisors to the client.
2.3 Determine whether the debtor is responsible for reimbursing the client for
your account and, if so, whether the debtor requires any information with
respect to calculation, method, timing of payment, and conditions upon
which you are acting.
2.4 In the case of a new corporate client, consider obtaining a directors’ reso-
lution confirming the conditions of the retainer and setting out who will
give instructions and to whom you will report.
2.5 Discuss the client’s objectives, the anticipated closing date, and the back-
ground of the transaction.
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2.6 Discuss whether perfection will be by registration or by possession in re-
spect of personal property forming collateral subject to the security.
Perfection by registration is desirable even if there is also perfection by
possession.
2.7 Collect information and discuss the provisions of the security agreement,
referring to the
SECURITY AGREEMENT DRAFTING (B-13) checklist. Include:
.1
Description and location of the collateral and location of the places of
(residence or) business and chief executive office of the debtors:
(a) Description and location of personal property, including make and
serial numbers of motor vehicles and other serial-numbered goods
(see Personal Property Security Regulation, B.C. Reg. 227/2002).
(b) Identify property not subject to intended security interests or the
Personal Property Security Act, R.S.B.C. 1996, c. 359 (the
“PPSA”) (see PPSA, s. 4).
(c) Identify property that may not be personal property governed by
PPSA, s. 4 (e.g., intellectual property and life insurance policies).
(d) If the collateral includes land, recommend a registered mortgage
instead of a floating charge.
(e) If the collateral includes aircraft objects within the meaning of the
Convention on International Interests in Mobile Equipment, signed
in Cape Town on November 16, 2001, and the Protocol to the Con-
vention on International Interests in Mobile Equipment on Matters
Specific to Aircraft Equipment, consider the application of the Con-
vention and Protocol. The Convention and Protocol have the force
of law in British Columbia under the International Interests in Mo-
bile Equipment (Aircraft Equipment) Act, S.B.C. 2011, c. 12.
(f) If the collateral includes consumer goods (see PPSA, s. 1(1)), con-
sider the effect of PPSA, s. 67. Generally avoid having the debtor
grant security over consumer goods and other collateral as security
for the same indebtedness.
.2 Amount of loan: revolving, non-revolving.
.3
Interest rate: fixed, fluctuating, method of calculation, and compliance
with the Interest Act, R.S.C. 1985, c. I-15. It is usually prudent to insert
a provision addressing recent case law respecting the Criminal Code,
R.S.C. 1985, c. C-46, s. 347, and the criminal rate of interest (currently
35% APR for new agreements after June 22, 2023).
.4 Repayment terms.
.5 Guarantors (limited or unlimited, joint and several, several, rateable).
.6 Special covenants.
.7 Loan disbursement date.
.8 Financial statements.
.9 Purpose of loan.
.10
Whether the security agreement is also to secure indirect obligations of
the debtor to the client, e.g., as a guarantor.
.11 Consider or obtain:
(a) Legal description of and interests in real property.
(b) Names of vessels (registered or licensed); whether a marine mort-
gage is required.
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(c) Descriptions of other assets (e.g., timber interests, water rights, air-
craft, assignments of contracts; if crops, when planted and when
“growing”).
.12 Whether collateral will be commingled.
.13 Accessions.
2.8
Determine the most appropriate type of security agreement (e.g., general,
specific, site-specific, inventory, receivables).
(DEB) Determine whether a debenture is a more appropriate form of security
agreement than a general security agreement. (Note that an unsecured de-
benture is not a security agreement.)
2.9 Ensure that statutory restrictions on providing financial assistance do not
apply, or if they do, they are satisfied; identify any officers’ certificates or
other evidence you rely on in reaching this conclusion, and any required
legal opinions. Under Business Corporations Act, S.B.C. 2002, c. 57 (the
“BCA”), s. 195, British Columbia companies may provide financial assis-
tance to any person for any purpose, subject to the directors satisfying their
obligations under the common-law business judgment rule, but will be re-
quired to notify their shareholders of the financial assistance in some
circumstances. Resolutions of directors of British Columbia companies
providing financial assistance should evidence the reasons why giving fi-
nancial assistance is in the best interests of the company—a simple recital
of best interests may not be adequate.
2.10 Consider and obtain instructions:
.1
Should any registrations be performed before security is executed? If
not, obtain clear instructions as to when to register. Registration under
the PPSA is generally made in advance of closing, once the general form
of the security agreements has been sett
led. Registration under the
PPSA (except for filing fixtures notices in the land title office (“LTO”))
may be made before the security agreement is executed.
.2
Is the lender entitled to any purchase money security interests
(“PMSIs”)? If so, ensure that all necessary steps are taken to obtain the
“super priority” conferred by PMSI status (see PPSA, s. 34).
.3 Is a carrier or other person in possession of the collateral an agent of the
debtor? Particular caution must be taken if the client wishes to establish
a PMSI.
.4 Are there any prior unregistered interests?
.5 Is the owner of the property also the beneficial owner?
2.11 If a lender is taking security on personal property that is or could become
fixtures or crops, consider whether a PPSA fixtures notice should be ob-
tained and registered under the Land Title Act, R.S.B.C. 1996, c. 250 (see
PPSA, ss. 36 and 37).
2.12
Determine whether there are any consents or priority or other agreements
required for the charges contemplated. Such consents and agreements often
involve persons who would otherwise have prior rights to the collateral ab-
sent contractual agreement. Consent
s of third parties to assignments of
material contracts or licences may also be required. Review the terms and
conditions of licences that are being encumbered to ensure that they do not
limit the secured party’s right to dispose of them.
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2.13
Determine where the collateral is located and whether the collateral has
been in British Columbia for 60 days (see PPSA, s. 5(3)).
2.14
If any of the collateral, residence, business locations, the chief executive
office, or jurisdiction of formation of the debtor are outside British Colum-
bia, review PPSA, ss. 5 to 8.1.
2.15 Determine whether the debtor or the secured party is subject to any statu-
tory or regulatory requirements that affect its ability to lend, borrow, or take
or hold security.
2.16
If you are not in a position to act, advise the client. Make a record of the
advice given, and file your notes. Send a non-engagement letter (for sam-
ples, see the Law Society resource available at
www.lawsociety.bc.ca/
Website/media/Shared/docs/practice/resources/ltrs-nonengagement.pdf).
3. AFTER THE INITIAL INTERVIEW
3.1 Confirm your retainer. Refer to the CLIENT FILE OPENING AND CLOSING
(A-2) checklist.
3.2 Confirm compliance with Law Society Rules 3-98 to 3-110 for client iden-
tification and verification and the source of money for financial transactions
(see item 1.4 in this checklist).
3.3 If the client is a company, verify who has the authority to give instructions
(Code of Professional Conduct for British Columbia (the “BC Code”)
rule 3.2-3 Commentary [1]). Consider having a directors’ resolution con-
firm your retainer and giving one officer or director the authority to instruct
you.
3.4 If acting for the secured party, send a letter or email to, or telephone, coun-
sel for the debtor, advising that you are acting for the secured party. If the
debtor has not retained counsel, send a letter urging the debtor to obtain
independent legal advice. (If not acting for the secured party, communicate
with counsel representing the other parties that you are acting for your cli-
ent, and if other parties are unrepresented, urge them in writing to seek
independent legal representation.) Make it clear to other parties that you are
not protecting their interests and that you are acting exclusively in the in-
terests of your client. BC Code, rule 7.2-9.
3.5 Conduct relevant searches (and obtain and review copies of relevant docu-
ments), such as:
.1 Company search on corporate parties: debtor, guarantor, and, where
necessary, secured party. Include:
(a) Registered and records office.
(b) Annual report.
(c) Directors and officers.
(d) Notice of articles, articles, and amendments.
(e) Good standing, including whether the company has been struck off
and subsequently restored. Consider obtaining a certificate of good
standing.
(f) Powers, the manner in which they are to be exercised, and whether
they are to be exercised by shareholders or directors, including:
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(i) Debtor’s power to borrow; check on terms and conditions of
prior security interests (e.g., whether there is any charge or se-
curity interest restricting the right to grant a fixed charge. If the
debtor is a society, s. 34(2) of the Societies Act, S.B.C. 2015,
c. 18 provides that the bylaws of a society may restrict or pro-
hibit the society’s
ability to borrow money or to issue bonds,
debentures, etc.
(ii) Power to provide financial assistance, if applicable. Under s.
195 of the BCA, British Columbia companies have the power
to provide financial assistance to any person for any purpose,
subject to the directors satisfying their obligations under the
common law business judgment rule (see item 2.7
in this
checklist), but will be required to notify their shareholders of
the financial assistance if and when required under the BCA.
(iii) Who can perform the acts contemplated on behalf of the debtor
and guarantor (e.g., directors or shareholders, from whom au-
thorizing resolutions should be obtained)?
(iv) Lender’s power to lend. Under s. 195 of the BCA, British Co-
lumbia
companies have the power to provide financial
assistance, including loans, but will be required to notify their
shareholders of the financial assistance if and when required
under the BCA. Also consider any limitations such as the loan-
to-property value ratio, or any prohibitions on lending to direc-
tors, shareholders, etc., or the aggregate value of loans (which
may be contained in legislation governing the lender, e.g., Bank
Act, S.C. 1991, c. 46; Insurance Companies Act, S.C. 1991,
c. 47; Trust and Loan Companies Act, S.C. 1991, c. 45; and Fi-
nancial Institutions Act, R.S.B.C. 1996, c. 141).
(v) Disclosure requirements applicable to the lender.
(vi) Manner of executing documents (signing authority, use of seal).
.2 Personal Property Registry for security agreements registered.
(a) Search for the debtor and guarantors under their full current legal
names, any business names, aliases, former names, predecessor
names, and similar names. Search under the serial number for each
serial-numbered good (see the Personal Property Security Regula-
tion, s. 1, for the definition of “serial numbered goods,” and s. 10
for the definition of “serial number”).
(b)
Consider obtaining copies of registered security agreements from
relevant secured parties (PPSA, s. 18 demand).
(i)
If your client is not an appropriate party, obtain execution of an
s. 18 demand by the debtor or guarantor; or
(ii) Get certified copies of security agreements from the lawyer for
the debtor or guarantor.
Note that subordination agreements may be required even if the current
security agreement does not extend to all of the collateral described in
the registration.
.3 Office of the Superintendent of Bankruptcy (Innovation, Science and
Economic Development Canada).
.4 Sheriff’s offices for executions.
.5 Canadian Securities Registration Systems for security under Bank Act,
s. 427.
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.6 Court registries in the regions in which the debtor does business.
.7 Copies of birth certificates, passports, driver’s licences, and certificates
of Canadian citizenship to prove individual debtor names. Be sure to get
the full legal name or consider multiple searches in cases where there
may be more than one name.
.8 Vehicle Records Department of ICBC.
.9 Transport Canada Ships Registry.
.10 Canada Revenue Agency (“CRA”).
(a) Taxation re corporate tax, payroll, source deductions, etc.
(b) Customs and Excise re GST, confirm registration, registration
number, and status of payments.
.11 WorkSafeBC.
.12 Corporation capital tax (contact Ministry of Finance). Corporation cap-
ital tax is no longer applicable but liability for outstanding tax can still
exist.
.13 Ministry of Forests, Lands, Natural Resource and Rural Development.
.14 Crown-Indigenous Relations and Northern Affairs Canada
(“CIRNAC”).
.15 Environmental agencies (e.g., see chapters 13 to 15 of Due Diligence
Deskbook (CLEBC, 1994–)). Also, recommend that the secured party
obtain an environmental report from a qualified environmental consult-
ant.
.16 Manufactured Home Registry.
.17 Transport Canada (for aircraft).
.18 International Registry under the Cape Town Convention (for aircraft
objects within the meaning of the Convention on International Interests
in Mobile Equipment and the Protocol to the Convention on Interna-
tional Interests in Mobile Equipment on Matters Specific to Aircraft
Equipment).
.19 Federal intellectual property offices (if the collateral includes trade-
marks, patents, or copyrights).
.20
Searches outside British Columbia (if collateral, residence, place of
business, or chief executive office of the debtor is outside British
Columbia, or the debtor is incorporated or formed outside British Co-
lumbia).
.21 Corporations Canada (for rolling stock, see Canada Transportation Act,
S.C. 1996, c. 10, ss. 104 and 105).
(DEB) Also consider searching:
• LTO (including copies of all charges, leases, etc.; consider searching
LOTR as well—see “Land Owner Transparency Act” under “New de-
velopments” in this checklist).
• Municipal and provincial offices regarding property taxes, zoning, per-
mits and licences, waste management, elevators, etc.
• Water rights branches.
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3.6 Some of these searches require the prior written consent of the entity being
searched (e.g., tax searches) and can take four weeks or more to be pro-
duced (e.g., CRA and some environmental and municipal searches).
Discuss with the client the purpose, cost, and timing of production of search
results to determine which of the above are appropriate to your client.
3.7
Discuss results of searches with the client, and finalize instructions as to,
e.g.:
.1 Any discrepancies in descriptions.
.2 Disposition of existing charges.
.3 Modification of security requirements.
.4 Priority agreements required, and their availability.
.5
Consents and notices required (especially from government authorities
and prior secured parties).
.6 Other security documents required (land mortgage, ship’s mortgage,
documents required for property that is not or may not be covered by
PPSA, etc.) (see PPSA, s. 4).
3.8 Make arrangements for funding the loan (where not handled by the lender),
purchase payout, and discharge of prior encumbrances on appropriate
undertakings, if necessary.
4. PREPARING THE DOCUMENTS
4.1 Obtain or prepare any required supplementary documents, such as:
.1 For corporate parties:
(a) Opinion letters from the debtor’s and guarantor’s lawyers, to in-
clude matters such as: corporate status; capacity and power; good
standing; incumbency; authorization for
borrowing of money or
giving of guarantee; authorization, execution, and delivery of the
commitment letter, security agreement, and any other security doc-
uments being provided.
(b) Directors’ resolutions and shareholders’ resolution, if required.
(c) If financial assistance is being provided by the debtor and for the
guarantor, which are British Columbia companies, a certificate or
other evidence to the effect that the granting of the security interest
is in the best interests of the debtor and the reasons for that conclu-
sion (see item 2.7 in this checklist), and that the debtor is not, and
will not be rendered, insolvent (this is good practice even though
the former Company Act restrictions on giving financial assistance
are no longer in effect). Under the BCA, s. 195, British Columbia
companies have the power to provide financial assistance to any
person for any purpose, but are required to notify their shareholders
of the financial assistance if and when required under the BCA.
However, s. 195 does not exclude the common-law business judg-
ment rule requirements, and evidence should be obtained and set
out in the directors’ resolution authorizing the financial assistance.
.2 Certificate of officer or statutory declaration as to the location of the
assets, existence of any other charges on the assets, any negative cove-
nants or restrictions on capacity, nature of the business, the place where
the business is carried out, and other factual matters.
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.3 Certificate of insurance together with a certified copy of the insurance
policy showing the loss payable to the lender, if the lender so requires.
.4
Consents (e.g., from the lessor, prior secured parties or other holders of
prior charges, CIRNAC, the government holding any accounts). Coor-
dinate any required consents with the debtor’s lawyers. If government
debts are part of the collateral, review and comply with the applicable
statutory provisions governing assignment of Crown debts.
.5 Priority agreements and/or landlord waivers.
.6 Discharges.
.7 Building and development permits, confirmation of zoning, outstanding
work orders (if land is involved).
.8 Obtain additional supplementary documents, such as:
(a) If the standard mortgage clause is requested, review it carefully for
its applicability to the transaction.
(b) Agreement from the landlord, prior secured parties, or the vendor
under an agreement for sale, agreeing that notice of default will be
given to the holder and that the holder may rectify the default dur-
ing the period of notice.
(c) Surveyor’s certificate.
(d) Tax certificate.
4.2 Prepare required documents, such as:
.1 Security agreements.
.2 Guarantees and postponements of claim (note that they may contain se-
curity interests that should be registered), or consider registrations
against guarantor as debtor within the meaning of the term in the PPSA.
.3 Bank Act, s. 427 security. Forward notice of intention to grant security
for execution. Ensure that the notice of intention is dated and filed at the
appropriate Canadian Securities Registration Systems office before the
date on which s. 427 security is executed.
.4 Promissory note.
.5 Loan agreement.
.6 PPSA
financing statement(s). Refer to the Personal Property Security
Regulation, and the BC Online User Guides at www.bconline.
gov.bc.ca.
.7 LTO notices for fixtures or crops (see PPSA, ss. 36, 37, 49).
.8 Consider registrations outside British Columbia (e.g., if assets, or the
residence, or a place of business, or the chief executive office of the
debtor are located elsewhere).
.9 Assignment of insurance policies, as required.
.10 Mortgages of land, ship’s mortgages, etc. (to be duly registered).
.11
Assignment of accounts (general or specific, to secure all indebtedness
or a specific sum).
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.12 Pledge or hypothecation of shares. Generally, such pledge is also ac-
companied by a power of attorney to transfer the shares and actual
delivery of share certificates. If the shares are in a private company, a
directors’ resolution authorizing the transfer of the shares to the secured
party or a purchaser of the shares should be obtained. Share certificates,
issued in the name of the secured party, constitute the best security. Rel-
ative bargaining power and the amount of the loan will affect whether
the certificates remain in the name of the debtor or the secured party.
.13 Control agreement over investment property (which includes shares,
whether certificated or uncertificated, security entitlements, securities
accounts, futures contracts, or futures accounts). See the Securities
Transfer Act (the “STA”), S.B.C. 2007, c. 10, and the numerous amend-
ments made by it to the PPSA.
(DEB) Prepare additional required documents, such as:
• Instrument of pledge of the debenture, if required.
• Land Title Form B, if the debenture creates a fixed charge on land.
(Floating charges on land—registration in the Personal Property Regis-
try constitutes registration under the Land Title Act, but does not give
the same level of priority protection.)
5. DRAFTING THE SECURITY AGREEMENT
5.1
Prepare an outline of the security agreement, or of the express clauses to be
added to the standard form of security agreement. See the SECURITY
AGREEMENT DRAFTING
(B-13) checklist.
5.2 Prepare the first draft.
5.3
Review the first draft, checking each segment to ensure that it achieves the
client’s objectives, and checking the document as a whole to ensure that it
is internally consistent. Make necessary corrections and prepare the second
draft.
5.4 Go over the second draft with the client, or send it to the client with a re-
quest that the client review it and note any questions or changes. Discuss
any changes with the client.
5.5 Make any changes required to the second draft and send copies to the
debtor’s lawyer for comment. Review any changes with the client.
5.6 Prepare the final agreement and arrange for signing.
(DEB) If the debenture charges land, use a filed standard form of debenture/mort-
gage, identified by registration number, if available and appropriate.
•
If standard mortgage terms need modification, or none exist, prepare the
express terms.
• If the debenture charges land, ensure that Form B is prepared (note: e-filing
is mandatory; see the
MORTGAGE PROCEDURE (F-2) checklist). If the de-
benture or security agreement includes a mortgage or floating charge over
land, ensure that documents are executed in dark ink and in the form re-
quired by the LTO.
6. CLOSING THE TRANSACTION
6.1 Register the financing statement(s) electronically in accordance with PPSA
regulations, if not already done (when in doubt, register against all known
names of, or used by, the debtor).
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6.2 Register international interest in an aircraft object at the International Reg-
istry under the Cape Town Convention in accordance with the
Convention
on International Interests in Mobile Equipment and the
Protocol to the
Convention on International Interest
s in Mobile Equipment on Matters
Specific to Aircraft Equipment, as required.
6.3 Ensure proper execution of all documents.
(DEB) Ensure proper execution of debenture:
• Authorized signatory and proof of execution, if appropriate.
• Comply with LTO execution requirements, if applicable (e.g., dark ink and
solicitor certification).
6.4 Check opinion letters.
6.5 Determine whether there is a priority agreement or postponement that cre-
ates a security interest (PPSA, s. 40). Registration is required and not
merely optional where a security interest is created. Registration by way of
a financing change statement amending the subordinating creditor’s financ-
ing statement is optional but recommended where the subordinating
creditor holds a PPSA registration (obtain authorization from that creditor
before changing its registration).
6.6 Send a copy of the printed document evidencing the registration to each
debtor within 20 days after registration (PPSA, s. 43(15)), unless the debtor
has waived, in writing, the right to receive a statement.
6.7 Ensure the debtor receives a copy of the security agreement within 10 days
after execution (PPSA, s. 11).
6.8 Review the PPSA closely as to PMSI procedure and take all necessary steps
to perfect PMSIs (PPSA, s. 34).
6.9 Conduct all necessary post-registration searches.
6.10
Prepare an opinion letter to the client. (In respect of personal property, do
not express opinions on title, perfection, or priority. Do not express priority
opinions on floating charges on land. Obtain and review copies of the opin-
ion letters prepared by the Solicitors’ Legal Opinions Committee of British
Columbia available through CLEBC’s website:
http://www.cle.bc.ca/solic-
itors-legal-opinions/; see Advising British Columbia Businesses (CLEBC,
2006–), chapter 7 (Legal Opinions).
6.11 Handle, or advise the client regarding, disbursement of funds on the loan
disbursement date.
(DEB) File documents as soon as possible:
• Where the debenture includes a fixed charge against land, register Form B
in the appropriate LTO (note: e-filing is mandatory; see the
MORTGAGE
PROCEDURE
(F-2) checklist) with the debenture as express mortgage terms
(unless Form B refers to filed standard mortgage terms).
• Where the debenture includes a charge against personal property or a float-
ing charge on land, register a financing statement with the appropriate
collateral description in the Personal Property Registry. Ensure serial-num-
bered goods are properly described in the registration, in compliance with
the PPSA.
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• Consider and make any other registrations required (e.g., PPSA, fixtures
notice in the LTO, priority agreement, financing statements in respect of
guarantee containing assignment of claims) in the LTO, Personal Property
Registry, or the International Registry under the Cape Town Convention in
accordance with the
Convention on International Interests in Mobile
Equipment and the
Protocol to the Convention on International Interests in
Mobile Equipment on Matters Specific to Aircraft Equipment, as required.
• Conduct all necessary post-registration searches. Order a state of title cer-
tificate respecting real property, if applicable.
7. CLOSING THE FILE
7.1
Prepare a reporting letter and account as soon as practicable after closing.
Include copies of relevant documents, details of registration, and details re-
garding your searches. Draw the client’s attention to:
.1 Expiry of registration under the PPSA. Confirm who will make a diary
entry regarding expiry of registrations. Generally, the client should take
responsibility for any renewal of registrations.
.2 Necessity to file financing change statements if:
(a) The debtor changes its name, transfers all or part of the collateral,
or transfers its interest, although the PPSA does not require this to
be done.
(b) Registration marks or serial numbers are changed, or serial-num-
bered goods are added to the collateral.
(c) Collateral described as inventory in the registration ceases to be
used as inventory.
.3 Fact that certain parties may demand information regarding the transac-
tion and the security agreement, the secured party’s obligation to
respond to such demands, and the consequences of failing to respond
(PPSA, s. 18).
.4
Fact that the client must perfect as to proceeds of a different kind and
with serial numbers.
.5 Need to re-register promptly if registration is discharged without au-
thority.
7.2 Send copies of relevant documents, including document prints, verifying
PPSA registrations and final search to the debtor’s lawyer.
(DEB)
When the state of title certificate is received from the relevant LTO, send a
final opinion letter to the client.
7.3 Close the file. See the CLIENT FILE OPENING AND CLOSING (A-2) checklist.
