Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Financial Services, March 2009

In Quebec, until recently, an individual (unless acting in a business context) could only grant security over certain very limited types of property while retaining possession of such property, for example, certain types of road vehicles, a caravan, a mobile home, a boat or an aircraft. This list has recently been expanded with the adoption by the Quebec government on January 16, 2009 of a new regulation amending the Regulation respecting the register of personal and movable real rights (the Regulation) which replaces section 15.02 of the Regulation. The Regulation, as amended, could lead to a decrease in credit costs for individual debtors by allowing them to hypothecate without delivery additional types of property, including securities and security entitlements referred to in An Act respecting the transfer of securities and the establishment of security entitlements (Quebec) (the Act), which came into force on January 1, 2009.

REGULATION RESPECTING THE REGISTER OF PERSONAL AND MOVABLE REAL RIGHTS

The amended Regulation expands the categories of movable property on which an individual debtor not acting in a business context will be able to grant a hypothec without delivery. In addition to the property already covered by the existing Regulation, an individual debtor will now be able, subject to the exceptions mentioned below, to also grant a hypothec without delivery on any intangible property, including the following:

1. securities and security entitlements referred to in the Act;

2. precious property within the meaning of the Taxation Act (Quebec), which could include, for example, any property owned by an individual debtor which is used primarily for his/her personal use or enjoyment, such as drawings, paintings, sculptures, jewellery, stamps or coins, etc.;

3. property that constitutes a form of investment within the meaning of the Securities Act (Quebec), for example, shares, bonds, capital stocks of an entity constituted as a legal person or subscription rights or options to purchase from such entity;

4. derivatives referred to in the Derivatives Act (Quebec) – in force as of February 1, 2009 – which could include, for example, options, swaps and futures contracts;

5. claims – which could include, for example, deposits in a bank account;

6. rights arising from an insurance contract; and

7. rights arising from intellectual property.

However, it should be noted that the amended Regulation specifically excludes property constituting a registered retirement savings plan, a registered retirement income fund, a registered education savings plan or a registered disability savings plan within the meaning of the Taxation Act (Quebec). Individual debtors therefore will not be able to grant a hypothec without delivery on such types of property.

The amendment to the Regulation eliminates uncertainties that existed with respect to the validity of hypothecs granted by individual debtors on property such as proceeds of life insurance policies and term deposits. As a result, it is anticipated that this should allow financial institutions to finance, or attribute higher credit values to, the above-mentioned categories of property.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.