Transcript PPSA - University of New Brunswick

Commercial Law
Introduction
Administrative
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Text
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“In-house” materials
One Volume
Evaluation
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100% open-book final examination during the regularly
scheduled examination period
Open-book
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You are responsible for
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Computers and similar electronic aids are not permitted
No library materials
All material covered in class
You are not responsible for material which is not assigned
Administrative
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The text of these slides is available online
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http://www.law.unb.ca/Siebrasse/Comm/Comm.htm
E-mail will be used as a regular means of
communication for course purposes
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Notice of cancelled classes etc
What is Commercial Law?
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Commercial law
Debt
 Transactional
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Corporate law (business associations)
Equity
 Organizational
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What is Commercial Law?
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Debt Financing
Unsecured debt
 Secured debt
 Bankruptcy
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Transfer of Debt
Assignment of Debt
 Negotiable Instruments
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Course Topics
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Debt Financing
Secured & Unsecured Debt
 Real & Personal Property (Secured)
 Pre- & Post-Judgment (Unsecured)
 Before & After Bankruptcy
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Course Topics
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Comparative approach
Jurisdictional variation
 Secured v unsecured
 Land v Personal Property
 Effect of Bankruptcy
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Issues
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Policy
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Minimize ex ante cost of debt
Law
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Enforcement
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Creditor v Debtor
Priorities
Creditor v Creditor
 Creditor v Third Party
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Policy
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Ex ante cost of debt
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You need to borrow money
To start a business
 To buy a house or car
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Pretend you get to write the law before you borrow
the money
 What law do you want?
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Why not ask what law you want after you
borrow the money (ex post)?
Policy
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Cost of debt =
Return to capital +
 Default risk +
 Transaction costs
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Return to capital
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Is set by financial markets
Commercial law
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Affects default risk & transaction costs
Law
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Enforcement
Creditor v Debtor
 What remedies does lender have against D after
default
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Priorities
Creditor v Creditor
 Creditor v Third Party
 What rights to 3rd parties have in D’s assets?
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Enforcement
Enforcement
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No enforcement against the person of the
debtor
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Imprisonment to enforcement payment no longer
exists
Enforcement against the assets of the debtor
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All creditors – secured and unsecured – ultimately have
recourse against essentially all the assets of the debtor
Secured v Unsecured
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Enforcement difference is the mechanism for
realizing against those assets
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How are the assets turned into cash to satisfy the
debt without the cooperation of the debtor?
Two key differences between secured &
unsecured debt
Self-help
 Role of judgment
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Enforcement
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Secured
Self-help
 No judgment required after default
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Unsecured
Enforcement by public officer (sheriff)
 Judgment required
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Self-Help
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Secured creditor generally has self-help remedies
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The creditor ‘owns’ the collateral
No self-help enforcement before or after judgment
for unsecured creditor
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Has a personal right of action against the debtor: ie has
the right to sue to judgment
Extremely limited rights against debtor’s assets prior to
judgment: must obtain judgment in order to seize
debtor’s assets
Enforcement by public officer – sheriff or trustee in
bankruptcy
Unsecured Creditor –
Enforcement
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Unsecured creditor enforcement mechanism in
many jurisdictions depends on the type of
property
Memorials and Executions Act – tangible property
 Garnishee Act – debts
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Unsecured Creditor –
Enforcement
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Why are there different enforcement systems?
Functional differences
 Historical accident
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Reformed jurisdictions
Nfld
 Alta
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Bankruptcy
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An enforcement mechanism
For unsecured creditors
Trustee in bankruptcy replaces sheriff as
enforcement ‘officer’
 Secured creditors are (mostly) unaffected
 Priorities are (mostly) unaffected
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Priorities
Priorities between Creditors
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When there is more than one creditor and
insufficient assets, how are the assets divided?
Key difference between secured and unsecured
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Pro rata sharing
Each creditor receives eg 25 cents on the dollar of debt
 Unsecured creditors
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Lexical ranking
Highest ranking creditors is paid out in full before any other
creditor receives anything
 Secured creditors
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Third Party Priorities
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Third parties may also have or acquire rights in
the debtor’s assets
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Eg Purchaser
What is the priority of the third party?
Especially when dealing with prior non-possessory
security interest
 Separation of ownership & control
 The problem of ostensible ownership
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Secured Creditors
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Enforcement affects only the debtor and the
creditor
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Priority of security interests affects third parties
So, to obtain priority in property, you must
“perfect” your interest – publicize it to the world
Secured lending law is hostile to secret prior interests
 But cf ownership interests
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Security Interests – Publicity
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Perfection is by
Registration – most important
 Possession
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Different types of property have different
registration systems
Personal Property Security Act/Registry
 Land Titles Act/Registry
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Security Interests – Registration
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Why are there different registration systems?
Functional differences
 Historical accident
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Other ‘types’ of (federal) property with separate
registration
Bank Act
 Intellectual Property
 Ships – Canada Shipping Act
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Secured Creditor
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Convenient to say that secured creditor has a
“property” right in the debtor’s goods
But a secured party’s rights are determined by
statute and equity, not primarily by property law
 Nemo dat quod non habet is NOT the law
 D can give what it doesn’t have
Types of Secured Creditor
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Consensual secured creditor - “secured party”
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Mortgages, Chattel mortgages, Conditional Sales
Agreement, Financing lease
Now referred to as “security interests”
Personal Property – Personal Property Security Act
 Land – Land Titles Act / Registry Act
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Non-consensual secured creditor - “lien holder”
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A security interest which arises by operation of law
Mechanics’ Lien Act (builders)
 Liens on Goods and Chattels (mechanics)
 Government liens
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Types of Collateral
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Enforcement and priorities depend on type of
collateral
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Personal property v Land
Why?
Unsecured Creditor
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Pro rata sharing priority system between
creditors
Unsecured creditors generally rank behind third
parties who take prior to (registration of)
judgment
Secured Creditor - Summary
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Self-help enforcement
Can seize assets without prior judicial approval
 Judicial supervision of enforcement is ex post
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Lexical priority system
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Highest ranking secured creditor paid out in full
before second ranking creditor receives anything
Secured parties generally rank before subsequent
third parties
Unsecured Creditor - Summary
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No self-help enforcement
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Enforcement by sheriff or trustee in bankruptcy
Pro rata sharing among unsecured creditors
Rank below third parties who take prior to
(registration of judgment)
Summary
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Secured creditor
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Unsecured creditor
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Self-help enforcement, no judgment required
Lexical priority system
Strong rights against third parties
No self-help enforcement, judgment required
Pro rata sharing
Few rights against third parties
As a practical matter, an unsecured creditor gets
almost nothing in bankruptcy
Secured Debt - Acts
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Personal Property
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Personal Property Security Act – PPSA
Real Property
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Priorities
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Enforcement
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Land Titles Act/ Registry Act
Property Act
Other types of property
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Eg Bank Act, Copyright Act, Patent Act, Canada
Shipping Act
Unsecured Debt - Acts
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Priorities
Creditors Relief Act
 PPSA
 Bankruptcy Act (federal)
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Enforcement – Real and Personal Property
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Memorials and Executions Act
Enforcement – Choses in Action (Debts)
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Garnishee Act