Amendments To PMSI Rules In Saskatchewan

As we summarized in a recent Financial Services & Insolvency Communiqué, Saskatchewan has introduced Bill 151 (the Bill) which amends The Personal Property Security Act, 1993 (Saskatchewan) (the PPSA or the Act). Over the coming weeks our Saskatchewan Financial Services team will bring you a number of posts to inform you about the upcoming changes and how they may impact you.

This post will focus on amendments to the PPSA's rules for purchase-money security interests (PMSIs). Broadly, the PMSI amendments entail three main changes:

new rules regarding cross-collateralization in the context of purchase-money financing arrangements involving inventory; PMSI status to continue through refinancing, whether a refinancing by the original lender or a new third party lender; and how payments to a specific creditor are to be allocated where not already stipulated by the parties, such that obligations secured by a PMSI would be the last loans to which payments would be allocated. We will discuss each of these amendments in more detail below.

PMSIs and Cross-Collateralization

Bill 151 introduces amendments to address cross-collateralization where a secured party provides purchase money inventory financing involving a series of transactions with the same debtor. This could arise in a floor plan financing of large whole goods inventory, where payments are generally tracked piece by piece, or it may be a supplier of smaller inventory, such as parts or retail inventory, where it's much more difficult to allocate payments to particular contracts or purchase orders.

One problem the amendments are meant to tackle is the extensive bookkeeping currently required by a secured inventory lender to keep track of which payments relate to which particular pieces of inventory and to track payments that discharge particular purchase money debt. Thus, this amendment is aimed at increasing efficiency and certainty in inventory financing relationships.

Under the amendments, there will be new sections 2(5) and 2(6) in the PPSA. Section 2(5) will provide that a PMSI in inventory will secure all obligations arising from related transactions creating a PMSI and it will extend to other inventory in which the secured party holds or held a security interest pursuant to a related transaction. Section 2(6) then defines related transactions as being where the possibility for both transactions is provided for in both transactions or an agreement between the parties entered into...