Home About Us Reports Final Report 2004 - Modernizing Canada's Secured Transactions Law: The Bank Act Security Provisions Executive Summary

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Final Report

Modernizing Canada's Secured Transactions Law: The Bank Act Security Provisions

Executive Summary

Canada needs a fair, efficient, and less complex legal environment for extending secured credit because the availability of credit enables businesses to fund current and future projects, and that contributes to the health of our national economy.

The existing secured transactions regime provided by the Bank Act security provisions, dates back to 1890. While it has undergone a series of amendments, it has never undergone a coherent, comprehensive modernization. Meanwhile, every province and territory has enacted modern secured transactions regimes. The co-existence of an outmoded federal regime with modernized provincial/territorial regimes produces considerable uncertainty, which seriously undermines the efficiency of Canada's secured transactions law.

In this Report, the Law Commission of Canada traces the evolution of secured transactions regimes. It then discusses four categories of problems caused by the Bank Act security provisions: statutory obsolescence, competing federal–provincial/territorial priorities, dual registry and the pre-emption of provincial/territorial legislative objectives.

The Commission identified three principles for guiding reform of the secured transactions provisions of the Bank Act.

• Principle 1: The problems associated with the co-existence of two legal regimes governing security interests in personal property should be addressed to increase the predictability of outcomes and to ensure that the legal regimes governing secured credit are efficient and effective.
  
  
• Principle 2: Federal secured transactions law should utilize terminology and concepts that are compatible with both the civil law system of Quebec as well as the common law systems of the other provinces and territories.
  
  
• Principle 3: Federal secured transactions law should not interfere with valid provincial and territorial legislative measures that are generally applicable within the provinces and territories unless it is necessary to achieve an identified federal objective.
  

These principles are used to assess the advantages and disadvantages of three reform options: amend the Bank Act provisions, create a federal Personal Property Security Act, or repeal the Bank Act provisions.

Based on its analysis, the Commission recommends that Parliament eliminate the Bank Act security regime by repealing sections 427 to 429 of the Bank Act. This option best meets the criteria of the three guiding principles. It is also most likely to create greater certainty in legal outcomes, and a more efficient and effective secured transactions regime.