Canada: A Banker Asked Us: Can A Corporation Own "Consumer Goods"?

Q:        Can a corporation own "consumer goods" in Ontario?

A:        It is generally understood that a corporation cannot hold or own "consumer goods" as currently defined under the Ontario PPSA.¹     

"Consumer Goods" is one of the collateral classifications included on financing statements registered under Ontario's "check the box" registration system for perfecting security interests.  The PPSA defines "consumer goods" as goods that are used or acquired for use primarily for personal, family or household purposes.²  In adopting a plain meaning interpretation of these words, Ontario courts have held that a corporate debtor cannot own "consumer goods" as defined.³

It is important to note that the Ontario PPSA imposes several special rules for security interests claimed in consumer goods.  For example, pre-registration is not available for financing statements perfecting a security interest in consumer goods⁴, and financing statements cannot be registered for periods longer than five years⁵.  Moreover, a secured party is not permitted to shelter or perfect more than one security agreement under a single registration⁶.  There are also special provisions for mandatory discharges of financing statements⁷ and other debtor-friendly terms which can trip up a lender.

Due to these special provisions and extra compliance hurdles for lenders financing consumer goods, you will frequently see carve-outs relating to consumer goods in  security agreements signed by corporate debtors and related legal opinions purely out of an abundance of caution.  Despite the existing case law, most lenders and their legal counsel wish to make absolutely certain that the collateral secured by their corporate agreements does not include "consumer goods". 

Footnotes

1 Personal Property Security Act, RSO 1990, c P.10, as amended [Ontario PPSA]

2 Ontario PPSA, Section 1(1).

3 533812 Ontario Ltd, Re, 1985CarswellOnt 219 (Ont Bkcy), affirmed 1987 CarswellOnt 175 (Ont. C.A.) at para. 5.

4 Ontario PPSA, Section 45(2).

5 Ontario PPSA, Section 51(5).

6 Ontario PPSA, Section 45(4).

7 Ontario PPSA, Section 57(1).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.