Security Agreements & The PPR: Securing Your Business Deal in Alberta

In business, trust is essential, but it's not a security strategy. Whether you're a lender providing a loan, a seller financing a sale, or a buyer acquiring assets, understanding the tools to secure your interest is critical. In Alberta, this revolves around two key elements: the Security Agreement and the Personal Property Registry (PPR). Together, they form the legal backbone for securing transactions beyond real estate, protecting all parties from hidden risks and financial loss.

The Foundation: What is a Security Agreement?

A Security Agreement is a contract between a borrower (the "debtor") and a lender (the "secured party") that creates a security interest in the debtor's personal property. This property can be equipment, inventory, vehicles, or even accounts receivable.

There are two primary types:

1. General Security Agreement (GSA): This is the most comprehensive form. A GSA grants a security interest in all of the debtor's present and future personal property. It's a "blanket" charge over the business's assets, often required by banks for business loans.

2. Specific Security Agreement (SSA): This agreement is limited to a specific, identified asset. For example, if you are providing a vendor take-back loan for a single piece of machinery, an SSA would secure the loan against that specific machine only.

   
   

Crucially, a Security Agreement alone is not enough. It creates the contractual right, but to enforce that right against others (like other creditors or a potential buyer), you must take the next step: registration.

The Public Notice: The Personal Property Registry (PPR)

The Alberta Personal Property Registry (PPR) is a public online database where security interests are registered. Think of it as a public bulletin board that announces to the world, "I have a legal claim on this property."

• Registration is the act of filing a "financing statement" in the PPR, which details the secured party, the debtor, and the collateral.

• Searching the PPR allows anyone to discover existing claims against a business's assets.

  
  

How They Work Together: A System of Protection

This system provides clear protections for each party in a transaction:

For Lenders & Sellers (Secured Parties):

• Establish Priority: Registering your security interest in the PPR establishes your legal priority over other creditors who might register later. In a default or bankruptcy, this priority is often the difference between recovering your money and losing it.

• Secure Your Collateral: It gives you the enforceable right to seize and sell the collateral if the debtor fails to pay.

For Buyers of Business Assets:

• Conduct Due Diligence: Before buying assets, a PPR search is non-negotiable. It reveals if the equipment or inventory you want to purchase is already pledged as collateral for a loan.

• Avoid "Buying a Debt": If you buy an asset with a registered security interest, the lender may have the right to repossess it from you. A PPR search allows you to require the seller to clear all liens before you complete the purchase.

  
  

The Critical Steps in a Secure Transaction

1. Draft the Agreement: A well-drafted General or Specific Security Agreement is the first step, clearly defining the obligations and the collateral.

2. Register in the PPR: Immediately after signing the security agreement, the secured party must register a financing statement in the PPR to "perfect" their interest and make it enforceable against third parties.

3. Search the PPR: Any buyer or subsequent lender must search the PPR to understand what claims already exist against the business's assets.

   
   

Secure Your Business Interests with Confidence

The interplay between security agreements and the PPR is complex, and errors can be costly. An improperly drafted agreement or a flawed PPR registration can render your security worthless.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. The law governing secured transactions is complex. Always consult with a qualified professional for your specific situation.

Whether you are a lender seeking to secure a loan or a buyer conducting due diligence, the experienced business lawyers at Jade Sunrise Law can draft your security agreements, conduct PPR searches, and ensure your registrations are legally sound. Protect your investment—contact us today for a consultation.