Enforcing Security Interests in Collateral Under UCC Article 9, Ontario PPSA and Australia PPSA
1. Introduction
Enforcement refers to the legal rights and processes a secured party may use to realise the value of collateral when the debtor has defaulted on the secured obligation.
All three jurisdictions – United States UCC Article 9, Ontario (PPSA), and Australia (PPSA) – provide secured creditors with robust mechanisms in enforcing security interests, including the right to repossession of collateral and its disposition (sale or other disposition) without court proceedings in many cases.
They also impose duties on secured parties to act in a commercially reasonable manner and protect debtors (and junior creditors) by requiring notice of sale and giving rights like redemption.
Despite these shared core concepts, there are some differences in procedure, notice requirements, and the extent to which self-help is permitted or constrained, reflecting each jurisdiction’s legal tradition and policy choices.
In this post, we explore: the secured party’s rights upon default, including repossession and sale; debtor protections such as notice and surplus/deficiency rules; the availability of judicial vs non-judicial enforcement; and any special enforcement provisions unique to one system, with comparative insights and case examples.
2. Rights of Secured Parties in Enforcing Security Interests Upon Default
Under all three legal regimes, when a default occurs (typically defined by the security agreement, e.g. failure to pay or breach of covenant), the secured party obtains the right to enforce its security interest against the collateral.
It is noteworthy that neither Article 9 nor the PPSAs provide an exhaustive statutory definition of “default”; instead, the security agreement’s terms determine what constitutes default, supplemented by any applicable statutory standards (for instance, Ontario PPSA adds that collateral can be treated as in default if “at risk” in certain circumstances).
Once default has occurred, the secured party can generally do one or more of the following remedies (cumulative unless otherwise chosen):
2.1 Repossession of Collateral
The secured party can take possession of tangible collateral. UCC Article 9-609(a) states that “after default, a secured party… may take possession of the collateral.”
Importantly, UCC 9-609(b) authorises taking possession without judicial process as long as it can be done “without breach of the peace”. This codifies the right of “self-help” repossession under U.S. law, constrained only by the requirement not to breach the peace.
In practice, this means the secured party (or typically a repossession agent) can physically retrieve the collateral from the debtor’s premises or other location, but cannot use force, break into a locked home, or otherwise commit a disturbance or illegal act.
What amounts to a “breach of the peace” is determined by case law, since Article 9 does not define itCourts have found breaches of peace where, for example, repossessors used force or threats – Morris v First Nat’l Bank, 561 U.S. 247 (2010), is a classic example where bank agents surrounding and intimidating the debtor’s family member was held a breach of peace, rendering the self-help wrongful.
If a breach of peace is likely or the debtor resists, the secured creditor in the U.S. must desist and pursue judicial process (e.g. a court replevin order) rather than self-help.
In Ontario (and Canadian PPSAs generally), the statutes also permit repossession but with slightly different framing. Ontario PPSA s59(1) provides that upon default the secured party has, inter alia, the right to take possession of the collateral (unless otherwise agreed).
While the PPSA does not explicitly mention “breach of peace”, Canadian law similarly does not allow illegal force in repossession – any self-help must be peaceable and in compliance with general law (trespass, etc.).
A noteworthy aspect in Ontario is the influence of common law and overlapping statutes: as confirmed in the case Ontario Inc. v Priest, ONCA 588 (2021), Ontario law requires that, before physically seizing collateral, a secured creditor give reasonable notice to the debtor of intention to seize and an opportunity to cure the default, unless this requirement is effectively waived or an exception applies.
The Ontario Court of Appeal in that case ruled on a “well-settled common law principle” that even though the PPSA allows repossession on default, the secured party should give the debtor a chance to pay once default has been declared before seizing assets.
The PPSA itself (OPPSA s63) requires a 10-day notice of sale after seizure, but the Priest case shows an additional pre-seizure notice expectation.
There are exceptions – for example, if the collateral is “at risk” of being removed or damaged (Ontario PPSA s59(8) permits immediate seizure if collateral is at risk, akin to the concept of jeopardy), the secured party may act without advance notice.
In practice, many Canadian secured creditors do send a demand letter or notice prior to enforcement to avoid disputes, as failure to do so can lead to liability for wrongful seizure.
The Australian PPSA explicitly outlines enforcement rights in Chapter 4 of the Act. Section 123 of the PPSA (Cth) gives a secured party the right to seize collateral after default (either by entering premises or by rendering equipment unusable, etc.), and like the others, this can be done without a court order provided no breach of the peace or unlawful act occurs.
Australian common law historically was a bit more hesitant on self-help, but the PPSA’s introduction has made it clear that extra-judicial repossession is permissible for personal property.
No court judgment is required to exercise PPSA remedies, and a secured party can proceed directly on default. However, Australian law, similar to Ontario, imposes an over-arching obligation that all enforcement actions be conducted “honestly and in a commercially reasonable manner” (PPSA (Cth) s111).
This statutory duty echoes UCC s9-607(c) and s9-610 which require commercial reasonableness in collection and disposition.
It implies that, for instance, seizing collateral in a manner that causes unnecessary public disturbance or damage could be challenged as not commercially reasonable, even if strictly peaceful.
In all jurisdictions, if collateral is intangible (like accounts receivable or investment property), “taking possession” means notifying the account debtor to pay the secured party directly or taking control of the account (UCC Article 9-607 allows a secured party to directly collect payments owed to the debtor once default has occurred, and PPSAs have similar provisions).
For example, a lender with security on a company’s receivables can, upon default, notify that company’s clients to remit payment to the lender – an important self-help remedy for intangibles.
2.2 Disposition (Sale or Lease) of Collateral
After taking possession (or even without taking possession, in some cases), the secured party has the right to dispose of the collateral to satisfy the debt. UCC 9-610(a) provides that “after default, a secured party may sell, lease, license, or otherwise dispose of any or all of the collateral” in a commercially reasonable manner.
The disposition can be public (auction) or private, as long as every aspect of the sale (method, time, place, terms) is commercially reasonable (UCC 9-610(b)).
Ontario’s PPSA s63 is analogous: a secured party may sell, lease, or otherwise dispose of the collateral in a commercially reasonable way after default.
Australia’s PPSA, Part 4.3, similarly empowers the secured party to dispose of collateral by sale or lease (or retain it as discussed below) and mandates commercial reasonableness and good faith.
The proceeds of sale are applied to the obligation, with any surplus returned to junior claimants or the debtor, and if a deficiency remains, the debtor is liable for it (unless waived).
Each system has a similar distribution order: reasonable costs of enforcement are paid first, then the senior secured debt, then juniors, then the debtor gets any remainder (UCC 9-615; OPPSA s65(1)).
Notably, if the sale doesn’t cover the debt, the creditor can typically sue for the deficiency, although in some consumer cases there are restrictions (e.g., some U.S. states or Ontario’s PPSA have anti-deficiency rules for certain consumer goods transactions where the secured party chooses certain remedies).
2.3 Strict Foreclosure (Retention of Collateral)
As an alternative to selling the collateral, the secured party may propose to retain the collateral in satisfaction of the debt (either partial or full satisfaction).
UCC 9-620 permits this approach (often called strict foreclosure), but with significant procedural requirements: the secured party must send a proposal to the debtor and other secured parties, and if any object within 20 days, the secured party must instead dispose of the collateral by sale.
Furthermore, for consumer goods, Article 9 prohibits retention in partial satisfaction – it must be full satisfaction of the obligation, and additional protections apply (UCC 9-620 and 9-622).
The Ontario PPSA s62 has a similar concept called “foreclosure” where a secured creditor can accept the collateral in full satisfaction by giving notice of intention to retain; if the debtor or other interested parties do not object within a prescribed time (e.g., 15 days), the collateral vests in the secured party and the debt is discharged. If there is an objection, the creditor must sell the collateral.
Australian PPSA also allows acceptance of collateral (often called retention) under sections 134-136, with notice to the grantor and others and a 10 business day objection period.
In all systems, this remedy is used relatively infrequently (especially in commercial cases), as creditors often prefer to liquidate the asset, but it can be useful if the collateral’s value roughly equals the debt and the secured party is content to keep it (for example, a lessor with specific equipment might want it back rather than money).
2.4 Collecting or Appointing Receiver
In addition to physical seizure, a secured party may use indirect methods. UCC 9-607 allows a secured party to collect on collateral (like debts owed to the debtor) or enforce obligations of third parties (like taking down an indemnity or guaranty).
While UCC does not itself provide for “receivers”, in practice, secured creditors in the U.S. might ask a court to appoint a receiver in exceptional cases (particularly for large or complex collateral like an ongoing business), though that falls under general equity powers, not Article 9.
In contrast, Canadian law has a well-developed concept of receivership. Many Canadian security agreements (including those under Ontario PPSA) expressly allow the secured creditor to appoint a receiver or receiver-manager upon default to take control of the debtor’s business or assets.
This is also reflected in the Bankruptcy and Insolvency Act and provincial law that govern receivers. A receiver is an agent who can seize and sell collateral, operate a business, etc., for the benefit of the secured creditor(s).
While the PPSA itself doesn’t detail receivers, it recognises their role (OPPSA s66(2) speaks to a receiver’s duty to distribute proceeds as per the PPSA priorities).
Australia’s PPSA doesn’t abolish receivers either – especially for corporate security interests, the secured party (usually a bank with a general security agreement, akin to a “charge”) may appoint an external administrator or receiver under the Corporations Act 1990.
The PPSA interacts with this by carving out that PPSA enforcement doesn’t apply when a receiver is controlling the collateral under insolvency law.
In summary, the secured party’s enforcement rights on default are broad: take possession, dispose, or alternatively retain or collect. They can choose the sequence – for instance, sometimes a creditor might notify an intention to sell without actual physical seizure if the collateral is something like an account or even equipment the debtor agrees to surrender.
If collateral is already in the creditor’s possession (say, stocks held by a bank as collateral), obviously no physical repossession is needed and the bank can proceed to dispose after default.
3. Notice Requirements and Debtor Protections
With great power (to repossess and sell) comes legal responsibility. All three systems impose various notice requirements and standards of care to protect the debtor and other interested parties (like junior lienholders or guarantors) from prejudicial enforcement.
These protections ensure transparency and a chance for the debtor to redeem or for other creditors to step in.
3.1 Notice of Disposition
Before selling or otherwise disposing of collateral, a secured party generally must give advance notice to certain persons.
Under UCC Article 9, 9-611(b) requires that “reasonable authenticated notification” of disposition be sent to the debtor, any secondary obligors (e.g., guarantors), and other secured parties or lienholders who have an interest and have filed or notified the seller (with some exceptions).
The notice must be sent a reasonable time before the sale. While “reasonable time” is fact-specific, Article 9 provides a safe harbour for non-consumer transactions: notice sent at least 10 days before the sale is presumed reasonable (UCC 9-612(b)).
In consumer cases, reasonableness is not defined by a number of days but is subject to a standard of reasonableness under the circumstances.
The content of the notice must include details of the collateral and the intended disposition (UCC 9-613, 9-614 for consumer goods with more requirements). Failure to give proper notice can lead to liability for the secured party, including damages and sometimes limits on collecting a deficiency.
Ontario’s PPSA has a stricter timeline: it mandates at least 15 days’ notice to the debtor and other secured parties before disposition of collateral (OPPSA s63(4)).
The PPSA even provides a form for the notice (a “Notice of Intention to Sell” often) which must state an intention to sell after 15 days if the debtor doesn’t redeem.
The 15-day minimum is a concrete protection, giving debtors slightly more time than the UCC’s 10-day safe harbour.
If a secured creditor in Ontario fails to give the required notice, the sale is not invalidated, but the secured party can lose rights to a deficiency and face claims for any loss caused by lack of notice. Similarly, other Canadian PPSAs have notice periods (often 20 days in some provinces, but Ontario uses 15).
The Australian PPSA in section 130 requires the enforcing secured party to give 10 business days notice to the grantor (debtor) and some other secured parties before disposal, again with some exceptions (for example, no notice is needed if the collateral is perishable, or if it’s an intangible and giving notice is not reasonably practical, or if the debtor waived the right in a non-consumer agreement).
The 10-business-day roughly equates to two calendar weeks, similar to Ontario’s timeframe. It’s important in Australia that if notice isn’t given when required, the debtor or others can seek relief, and the secured party might be restrained from selling or face damages.
3.1.1 Exceptions to Notice
Common exceptions to the notice requirement across jurisdictions include: if the collateral is perishable or threatens to decline speedily in value, or is of a type customarily sold on a recognised market (e.g. stocks on a stock exchange – UCC 9-611(d)); in such cases, advance notice might not be required because waiting would be impractical or unnecessary.
Also, if the debtor waives notice after default (pre-default waivers are generally ineffective for consumer debtors, but may be allowed for business debtors in some systems), the secured party can proceed without the formal wait.
3.1.2 Debtor’s Right to Redeem
All three laws give the debtor (and secondary obligors or other secured parties) the right to redeem the collateral by paying off the secured obligation and any reasonable expenses before the collateral is disposed or retained.
UCC 9-623 codifies this right of redemption, which continues until the collateral is sold or a strict foreclosure is completed. To redeem, the debtor usually must tender the entire balance and costs (no partial redemption).
Ontario PPSA s62(1)(c) similarly allows redemption of collateral any time before sale or foreclosure, by paying the fulfilment of obligations plus reasonable enforcement expenses.
The Australian PPSA in section 142 provides a right to redeem collateral up until it is sold or retained, upon payment of the secured money and enforcement costs. This is a crucial protection: it gives the debtor a final chance to keep their property by curing the default entirely.
In practice, it also allows friends or junior creditors of the debtor to step in and redeem (for example, a second mortgagee might redeem collateral from a foreclosing first secured party to take it over and then deal with it).
Redemption rights cannot be contracted away in consumer cases and generally not in any case before default (UCC 9-624 permits a post-default waiver for non-consumer debtors, but not for consumer goods).
3.1.3 Surplus and Deficiency
After disposition, if the sale yields more than the debt and expenses, the debtor (or subordinate lienholders) are entitled to the surplus.
Conversely, if there is a shortfall, the debtor remains liable for the deficiency (unless a specific law says otherwise).
UCC 9-615 governs this, and Ontario PPSA s65 is analogous: surplus must be paid to the debtor or whoever is entitled (unless some other creditor has a claim to it), and the debtor is on the hook for deficiency.
However, importantly, if the secured party fails to conduct a commercially reasonable sale, courts can reduce or even eliminate the deficiency (the UCC has a rebuttable presumption in consumer cases that lack of compliance means no deficiency can be collected, in some states an absolute bar).
In Canada, historically a poorly conducted sale could similarly bar deficiency recovery under the “seize or sue” type rules or simply as a consequence of not getting fair value.
In fact, some provinces (not Ontario) have explicit seize or sue provisions for consumer goods (meaning a creditor who seizes the collateral cannot also sue for a deficiency – they must choose one remedy).
Ontario doesn’t have a blanket seize-or-sue, but under its PPSA if a secured creditor opts for strict foreclosure (retention), it cannot then claim a deficiency – the debt is discharged.
Australia’s PPSA also stipulates that once collateral is disposed, any surplus goes to the grantor, and deficiency claims remain unless limited by contract or law.
3.1.4 Commercial Reasonableness and Good Faith
All enforcement actions are subject to an overarching duty of good faith and commercial reasonableness. UCC 9-610 requires every aspect of a disposition to be commercially reasonable.
UCC 9-607 also implies collection efforts must be reasonable. If these standards are violated, the debtor can seek damages under UCC 9-625 and, as mentioned, it affects deficiency judgments.
Ontario’s PPSA (s63(2)) explicitly: “A secured party shall exercise a right of disposal of collateral… in a commercially reasonable manner.” Australia’s PPSA s111 imposes a general obligation of honesty and commercial reasonableness on enforcement.
In Bank of Nova Scotia v International Harvester Credit Corp., (1990) 40 O.A.C. 321 (CA), the court held that a secured party’s sale of repossessed equipment without proper advertising and at a questionable low price breached the duty, reducing the deficiency claim.
3.1.5 Additional Consumer Protections
In the U.S., Article 9 has some special rules for consumer-goods transactions (though the specifics were largely left to state law in Rev. 9).
For instance, a secured party in a consumer transaction has to provide additional information in the notice of sale (like how any deficiency will be calculated) under UCC 9-614.
And as noted, some remedies like strict foreclosure in partial satisfaction are not allowed for consumer goods (UCC 9-620). States may impose extra steps; e.g., some states require a repossession notice or cure period by separate statute for consumer auto loans.
In Ontario, consumer protections might come from outside the PPSA (like the Ontario Consumer Protection Act 2002) or the common law principle requiring notice/cure as seen in Priest case.
The Australian PPSA distinguishes between collateral that is used for personal, domestic or household purposes and other collateral; some rights cannot be contracted out for consumer property, and some notice provisions are mandatory.
Furthermore, Australia’s National Consumer Credit Code can require default notices and waiting periods before repossession of consumer goods (e.g., a 30-day default notice for regulated loans). Thus, while the PPSA itself is neutral, it defers to any such consumer law (just as Canadian PPSA defers to consumer statutes in case of conflict).
3.1.6 Statutory Notices in Insolvency
One notable additional requirement in Canada is the federal Bankruptcy and Insolvency Act (BIA) 1985, section 244 notice.
If a secured creditor intends to enforce on all or substantially all of the inventory, accounts receivable or other property of an insolvent debtor, it must give the debtor (and guarantors) 10 days notice of that intention (a “244 notice”) before enforcing, unless the debtor consents to shorter.
This is aimed at giving the debtor a last chance to reorganise (or for an orderly transition into bankruptcy if needed). So a bank in Ontario might issue a BIA 244 notice in addition to the PPSA notice of sale.
In cross-border cases, U.S. creditors are often surprised by this Canadian overlay. Australia’s law doesn’t have an exact parallel, though under corporations law, appointment of a receiver or initiating enforcement can trigger other processes.
3.2 Judicial vs. Non-Judicial Enforcement
Article 9 and the PPSAs strongly favour self-help (non-judicial) enforcement to reduce costs and delays. Judicial involvement is typically only required if peaceful repossession is not possible or if there’s a dispute.
For example, if a debtor locks collateral in a location or threatens violence, a U.S. secured party will resort to a court order for replevin (sheriff seizure) rather than risk breach of peace.
In Ontario, if a debtor refuses to surrender collateral after notice, the creditor might apply to court for a writ of seizure and sale or for the appointment of a receiver.
The Australian PPSA allows secured parties to choose court enforcement as well – they can seek court orders to seize or to gain injunctions, though this is less common given the PPSA’s streamlined self-help.
Notably, if a debtor believes the secured party is not complying with the PPSA (e.g., not giving notice or not selling in a reasonable way), the debtor can apply to court for relief.
Courts can restrain an improper sale, or impose conditions, or in the case of an improperly conducted sale, award damages. So while day-to-day enforcement is usually out-of-court, the court remains a backstop for fairness.
One illustrative case of enforcement disputes in the U.S. is Ford Motor Credit Co. v Ryan 189. Ohio App. 3d 560 (2010): debtor defaulted on a car loan; creditor’s agent repossessed the car from the debtor’s driveway at 2 AM without confrontation. This was deemed a lawful self-help repossession (no breach of peace).
However, suppose the agent had broken into a locked garage – that would likely be illegal, requiring a court order instead.
In all jurisdictions, conversion actions or other tort claims can be brought by a debtor if a secured party violates the peace or seizes something not covered by the security interest.
So, secured creditors must be cautious and precise – enforce only against the collateral described, avoid collateral that might be co-owned by a third party, and so on.
Ultimately, the enforcement regime of Article 9, Ontario PPSA, and Australian PPSA strives to balance the secured party’s interest in quick, effective relief against the debtor’s interest in fair treatment and preservation of value.
The similarities are strong because the PPSA models imported Article 9’s enforcement framework substantially: self-help repossession (with peaceable conduct), advance notice of sale, commercial reasonableness, redemption rights, and transparent distribution of sale proceeds.
The differences (like exact notice period or consumer carve-outs) reflect local legal culture but do not change the fundamental creditor-friendly yet debtor-protective nature of these laws.
4. Challenges and Criticisms
While UCC Article 9 and the PPSA regimes in Ontario and Australia are widely regarded as successful frameworks for secured financing, they are not without challenges and criticisms.
Legal practitioners, scholars, and courts have identified certain areas of difficulty, particularly in cross-border transactions, practical enforcement hurdles, and ongoing adaptation to new types of collateral or transactions.
In this section, we discuss some of these issues: how differences between jurisdictions affect cross-border secured transactions, practical problems in enforcement, and how judicial interpretations and reforms are developing to address these challenges.
We also touch on criticisms regarding complexity and the need for modernisation in light of technological and commercial developments.
4.1 Cross-Border Transaction Issues
In a globalised economy, secured transactions often span multiple jurisdictions. A business might have operations or assets in the U.S., Canada, and Australia, raising questions about which law governs perfection and priority of a given security interest.
Although Article 9 and the PPSAs share concepts, their conflict-of-laws rules have differences that can trap the unwary.
For example, under the U.S. UCC, the general rule is that the law of the debtor’s location governs perfection (for most collateral).
Debtor’s location is defined (for a registered organisation, the state of incorporation; for an individual, principal residence).
So a Delaware-incorporated company’s equipment, wherever located, is governed by Delaware (UCC) law for perfection. In contrast, until recently, Ontario’s PPSA had the rule that tangible collateral is governed by the law of the location of the collateral (situs), not the debtor’s location.
Intangibles were governed by debtor’s chief executive office (or now place of incorporation after a 2015 amendment aligning it more with UCC).
These mismatches meant that if collateral moved or if a U.S. lender thought “debtor in Ontario, I’ll file in Ontario”, but the asset was actually in New York, there could be an issue.
Or vice versa, a Canadian lender might have expected to file in Ontario for equipment kept there, not realising the debtor’s Delaware incorporation meant Delaware law (UCC) said file in Delaware. As the Osler guide notes, lack of harmonisation in conflict rules has been a pain point.
The good news is Ontario (and recently B.C.) amended their PPSAs to use debtor location for most collateral for greater harmony.
Australia’s PPSA mostly adopts the approach that the law of the jurisdiction of the collateral governs if it’s goods or certain intangibles located in Australia, but for the most part, since it’s a unitary federal system, conflict issues arise only when foreign elements come in (in which case Aussie PPSA defers to the law of the debtor’s location for intangibles and mobile goods, similar to Canadian rules).
Cross-border issues also include recognition of filings: a UCC filing in the U.S. has no legal effect in Canada or Australia – separate registrations must be done in each jurisdiction’s registry if collateral is located or deemed located there. This increases transaction costs and complexity.
A secured creditor lending to a multinational borrower must carefully perfect in multiple jurisdictions under each system’s rules.
Mistakes can be disastrous: consider a scenario where a U.S. lender takes security over a Canadian subsidiary’s assets but only files a UCC-1 in Delaware and forgets to register a PPSA in Ontario – that lender will find itself unperfected as against the subsidiary’s Canadian assets, perhaps behind the Canadian bank that did register.
The Cape Town Convention on International Interests in Mobile Equipment (like aircraft) adds another layer, as mentioned in the PPSA materials: aircraft may need dual registration (local PPSA/UCC and the international registry).
Another cross-border challenge is dealing with different terminology and document forms. For example, U.S. uses a UCC-1 form, Ontario (Canada) uses a PPSA financing statement that might require slightly different information (like debtor’s birthdate in Ontario).
If a financing is being done simultaneously in the U.S. and Canada, lawyers must coordinate to ensure both filings are correct.
Furthermore, the treatment of certain collateral types can differ – e.g., serial-numbered goods (like vehicles) in Ontario PPSA must have the VIN correctly listed if the debtor is an individual and the collateral is consumer goods, or the registration is invalid as to that collateral.
UCC has no such concept – listing serial numbers is optional (except for aircraft or titled vehicles under state COT systems).
Thus, a U.S. secured party enforcing in Ontario might be surprised that their financing statement that just said “all assets” isn’t effective for a car if they didn’t include the VIN and the debtor is an individual; Ontario case law (e.g., Registrar of Motor Vehicles v Canadian Acceptance Corp, 26 DLR (3d) 112 (1972)) has voided registrations for missing serial number, harming priority.
Similarly, Australian PPSR requires stating collateral classes and whether property is inventory or not, etc. Misclassification might not void the registration, but could mislead and cause other issues.
4.2 Language and Governing Law
The differences can complicate enforcement too. If a U.S. creditor has to enforce in Ontario, they must follow Ontario’s enforcement rules (e.g., the 15-day notice, perhaps even the common law notice from Priest case).
If they instead try to follow UCC procedures (like a quick 10-day sale without formal notice letter), they could be violating PPSA requirements and face legal challenges.
Cross-border insolvency (e.g., a debtor in bankruptcy in one country) adds another dimension – often the question of whose law applies to priority in bankruptcy is complex.
In short, while Article 9 and PPSAs are philosophically aligned, transitions across borders require careful understanding of each system’s nuances
Efforts at harmonization (like adopting similar conflict rules) and international instruments (like UNCITRAL’s Model Law on Secured Transactions, which itself is inspired by these regimes) are aimed at easing cross-border secured financing.
5. Practical Challenges in Enforcing Security Interests and Conclusion
Even within one jurisdiction, secured parties face practical challenges in enforcing security interests over collateral:
5.1 Debtor Evasion Tactics
Debtors in default sometimes resort to hiding collateral, disputing the default, or filing bankruptcy to stay enforcement. While not the fault of the secured transactions law per se, these pose practical enforcement issues.
For example, a debtor might take collateral out of state (or province) – under conflict rules, the secured party might need to perfect in the new location within a certain time (often 60 days) or lose priority.
Or a debtor might sell the collateral off to a friend or related entity quietly; if the buyer isn’t a protected buyer under the code/PPSA, the secured interest carries on, but enforcement becomes chasing a third party (possibly requiring litigation for recovery or claiming proceeds).
The secured creditor would then have to either trace the proceeds (if any) or assert conversion against the cousin. Law enforcement might help if it’s effectively theft, but usually it’s a civil matter. These scenarios test the edges of the enforcement system.
5.2 Priority Competitions with Non-Article9/PPSA Interests
Secured parties sometimes face competition from statutory liens or other rights that can prime even a perfected security interest. Tax liens, landlord’s liens, or mechanic’s liens for repairs can all, by statute, take priority over prior security interests.
Article 9 acknowledges some of these (e.g., a repairer’s lien in the ordinary course of business has priority over perfected security interests in goods, UCC 9-333).
The PPSAs have similar carve-outs (Ontario PPSA doesn’t explicitly list them, but provincial laws give garagemen liens, etc. priority). The presence of these can complicate enforcement – e.g., a secured lender goes to seize equipment only to find a repair shop refuses to release it until their bill is paid, with legal right to do so.
Usually the secured party must pay that lien (or negotiate) to get the collateral. These intersections are challenging because they involve reading multiple local statutes together.
5.3 Judicial Interpretation Variability
Although the laws are detailed, some ambiguities have required court interpretation. One example is what constitutes a “commercially reasonable” sale – courts have varied in how strict they are.
Some older Ontario cases were quite demanding about getting market value, while U.S. cases historically gave more latitude as long as some effort was made.
This variability can make outcomes uncertain and is a subject of academic critique: some argue for clearer safe harbours for commercially reasonable conduct to reduce litigation.
5.4 Complex Collateral (IP, Crypto, Receivables)
As new forms of assets emerge (like cryptocurrency or other digital assets), how they fit into Article 9/PPSA categories can be challenging.
Article 9 was updated in 2010s to introduce “electronic chattel paper” and clarify “general intangibles” coverage. But things like Bitcoin don’t neatly fit – is it an investment property (if held through an exchange)? a general intangible?
There’s ongoing discussion on how to perfect security interests in such assets (control agreements might be needed, or new laws).
Likewise, using collateral like verified carbon credits or other modern instruments tests the adaptability of these regimes. The critique here is that law might lag innovation, though the flexible, functional nature of Article 9/PPSA usually means new assets are at least classifiable as intangibles.
When it comes to enforcement, Article 9 and the PPSAs similarly empower secured creditors to repossess and sell collateral upon default with minimal court involvement, while also protecting debtors through requirements of advance notice, commercial reasonableness, and redemption rights
Debtor-protective mechanisms, like Ontario’s common-law notice requirement and the U.S.’s breach of peace limitation, reflect each system’s legal context but do not detract from the core resemblance: secured creditors have potent remedies but must exercise them fairly.
