Cassels Brock developed this Lessons Learned series based on our experience with priority disputes between secured creditors and the realization that many secured parties make fundamental errors of law that cause them to lose priority in their collateral. Each lesson in the series outlines a basic mistake and the lesson to be learned - this supplement illustrates a previous “Lesson Learned”…
Lessons Learned - Lesson One Supplement: Get the Name Right on the Financing Statement
The first instalment in our “Lessons Learned” series cautioned secured parties of the risks associated with registering their security using an incorrect name for the debtor.
The case of Harbouredge Mortgage Investment Corp v Powell Associates Ltd., 2016 NBQB 178 is a classic example whereby a secured party registered a financing statement which contained an error in the debtor’s name, and therefore lost their claim as a secured creditor.
Mall Centre-Ville Ltd. Mall Centre-Ville Ltee., (the Debtor), entered into a loan agreement (the Loan Agreement) with HarbourEdge Mortgage Investment Corporation (the Lender), and granted security against all of its real and personal property to the Lender. The Lender registered their interest in the New Brunswick Land Titles Registry, and registered a financing statement (the Financing Statement) in the New Brunswick Personal Property Registry (PPR).
The general collateral description in the Financing Statement contained a correct description of the Lender taking a security interest in all of the Debtor’s present and after-acquired property, but inadvertently identified the Debtor as “Mall Centre-Ville Ltd. Mall Centreville Ltee.”(they missed one of the hyphens between “Centre” and “Ville”) in the Debtor information field. A search of the PPR under the names “Mall Centre-Ville Ltd.” or “Mall Centre-Ville Ltee.” disclose the existence of the Financing Statement, but a search against the name “Mall Centre-Ville Ltd. Mall Centre-Ville Ltee.” does not disclose same.
The Debtor defaulted on its payments under the Loan Agreement, and the Debtor was subsequently assigned into bankruptcy under the Bankruptcy and Insolvency Act (BIA) after its creditors rejected the Debtor’s proposal made pursuant to the BIA. The Lender submitted a proof of claim in the Debtor’s bankruptcy, which was partially rejected on the basis that the Financing Statement contained a seriously misleading error and did not perfect the Lender’s security interest.
The Court did not accept the Lender’s argument that pursuant to New Brunswick Personal Property Security Act (PPSA), the error in the Financing Statement was not misleading. The Lender argued that the Debtor had a distinct English name and a distinct French name, and searches under either name would turn-up the Financing Statement. However, the Court held that the name set out in the New Brunswick Corporate Affairs Branch Data Base was a combined English-French form, and could not be considered to be interchangeable stand-alone English and stand-alone French names. Furthermore, a search of the Debtor’s full name “Mall Centre-Ville Ltd. Mall Centre-Ville Ltee.,” did not reveal the Financing Statement. The Court recognized that their rejection of the Lender’s argument led to a harsh outcome as a result of an inadvertent error, but held that this finding was mandated by the PPSA. The Lender’s security interest was therefore found to be unperfected.
This case serves as a reminder to secured parties to remain vigilant in preparing financing statements, as even a seemingly inadvertent error in punctuation can result in a security interest being unperfected.