Avoiding The Fire Sale: Protecting Your Security Interest Against Multiple Creditor Claims

The failure to perfect a security interest could result in losing property rights altogether in receivership proceedings despite being the owner of the property. A very recent example of this is the case of Wells Fargo Foothill Canada ULC v Big Eagle Hydro-Vac Inc., 2015 ABQB 546 (Wells Fargo).

The case is a reminder not only about perfecting one's security interest in order to enhance one's priority in the face of competing claims, but also offers helpful insight as to other steps that can be taken to protect that interest.

Analysis

In Wells Fargo, the Big Eagle Defendants (Big Eagle or the Debtor) went into receivership. The court-appointed Receiver brought an application to the Court for advice and direction with respect to multiple creditor claims over personal property of Big Eagle. The first creditor, Wells Fargo, had a security interest in all present and after-acquired personal property of the Debtor. The second was Gator Frac, which is a Texas company in the business of leasing its fracking equipment.

Wells Fargo had provided a credit facility to the Big Eagle Group pursuant to which Wells Fargo and other lenders loaned about $51 million. As security for the credit facility, Wells Fargo obtained a continuing security interest in all of Big Eagle Group's personal property "whether now owned or hereafter acquired or arising and wherever located" and including the Debtor's "right, title and interest in," goods, equipment and fixtures. On June 23, 2008, Wells Fargo registered the security interest at the Alberta Personal Property Registry (the PPR).

The second creditor, Gator Frac, leased two pieces of equipment to Big Eagle, being a trailer mounted frac heater and a truck-mounted frac heater (the Units). Gator Frac and Big Eagle entered into two similar leases for each Unit. The first lease was entered into in December 2013 and the second was entered into in late May 2015. Because the leases were for a term of more than one year, they created security interests such that the provisions of the Alberta Personal Property Security Act (PPSA) applied.

The first lease was terminated on April 29, 2015, and the second lease was terminated on June 4, 2015. Between May and June, Big Eagle and Gator Frac were taking steps to return the Units to Gator Frac's business premises in Texas, however, the Units remained at Big Eagle's yard.

On June 8, 2015, four days after the second lease was terminated, the Court granted a Receivership Order...