September, 2001

The Manitoba Personal Property Security Act (the “PPSA”) is primarily designed to govern interests held in personal property which (i) secure the payment or performance of an obligation of the owner of the collateral affected, and (ii) are consensually created (i.e. by the collateral owner’s conscious intentional act).  PPSA “purists” (of which the writer is not one) were no doubt appalled by the extension of the PPSA’s regime to “true” (i.e. non-financing) leases of chattels for a term of more than (or capable of being for more than a term of) one year - although all Manitoba personal property security legislation from the beginning (September of 1978) always did apply to certain interests which did not meet the above criteria.  For example, the interest that a person obtains when he or she acquires an interest in an account or chattel paper, not as security for the payment or performance of an obligation, but rather in the nature of acquisition of ownership of the account or the chattel paper. 

Such “purists” will be further appalled by the fact that under Bill 33 of the Second Section of the Thirty-seventh Legislature of Manitoba, an amendment is proposed to the Manitoba Highway Traffic Act which will allow a financing statement to be filed in the Manitoba Personal Property Registry (the “PPR”) to give notice of the forfeiture of a motor vehicle consequent upon its involvement in the commission of certain offences, and, that pursuant to an amendment to The Family Maintenance Act, which is now actually proclaimed in force, a financing statement will be capable of being registered in the PPR giving notice of a statutorily created security interest in the personal property of a person indebted for maintenance, following any default in the payment of the same.  Note however that these are not the first governmental inroads made into the security interest regime provided for under the PPSA; for example, the government previously gave itself the power to acquire a security interest in a motor vehicle (and to file a financing statement in the PPR with respect to the same) to secure payment of certain fines owing by a person. 

The proposal under the Highway Traffic Act provides that once a financing statement giving notice of a forfeiture is registered, any subsequent transfer of the vehicle or any subsequently created security interest in the vehicle “is void upon forfeiture of the vehicle…”  The arrangement contemplates that the government can first file a financing statement against a vehicle before conviction, and then subsequently, if and when a conviction is obtained and the actual forfeiture occurs, the result is that the government obtains the vehicle free and clear of any interest acquired in it which arose between the time of such registration and the time of conviction for the offence.  The proposal also provides that if the vehicle was damaged during commission of the offence, insurance proceeds must be paid to the government pending the outcome of proceedings arising out of the offence. 

The statutorily created security interest under The Manitoba Family Maintenance Act will, upon registration in the PPR by the government on behalf of the claimant, have priority over any other claim or right in any or all of the property or assets of the person in default in paying maintenance, whether created or arising before or after the default, excepting only for:

(i)            a purchase money security interest perfected (most typically, by way of registration in the PPR, but this could also include perfection by possession) before the government files the maintenance claim financing statement; and

(ii)           a purchase money security interest arising after the government has filed the maintenance claim financing statement, provided that the purchase money security interest creditor registers its financing statement no later than 15 days after the debtor obtains possession of the financed collateral.

Some questions arise from the language of these new Family Maintenance Act provisions:

1. The legislation says that upon registration of the maintenance claim financing statement, the security interest thereby created “is a lien and charge on the property and assets of the person required to pay maintenance…”  Clearly, such lien and charge would apply to the property and assets of the debtor existing at the time financing statement is registered, however, does it extend to subsequently acquired personal property?  One would think that the intent of the Legislature was to attach both present and after acquired property, however, this is not explicitly stated. 
2. The legislation states that the security interest secures arrears of maintenance which exist at the time of registration of the maintenance claim financing statement and arrears of maintenance which accrue after that financing statement is registered.  If a person obligated to pay maintenance has a history of going into - and out of - default in payment of his or her obligations, will the government keep its original maintenance claim financing statement continuously registered indefinitely, even during periods of time when the debtor happens to have paid up his or her arrears?  Related to this question is whether or not a debtor who has paid off all maintenance arrears is entitled to require a discharge of the maintenance claim financing statement.  Under the PPSA a debtor in a registration for a “normal” financing statement is entitled to require a discharge of the financing statement when the obligation secured has been paid off or satisfied.  In this regard, although these new provisions of the Family Maintenance Act say that a maintenance claim security interest is “deemed to be security interest under the Personal Property Security Act”, and that the official who registers the financing statement in the PPR on behalf of the maintenance claimant is “deemed to be a secured party under the Personal Property Security Act, and the person in default is deemed to be a debtor under that Act”, the legislation does not say that the maintenance claim security interest is “subject to the provisions of the Personal Property Security Act”, or words to that effect.

If, once a person has gone into arrears of the payment of maintenance and a financing statement is accordingly registered against him or her, and the government’s policy is to keep the financing statement registered indefinitely, then the debtor’s ability to access credit may be permanently reduced or eliminated.