Sometimes we all need to be reminded of those frustrating technical details especially when it comes to taking security for a loan. In a recent matter heard by a Registrar in Bankruptcy in Alberta , Re Hupfer, the Master did not accept the lender’s claim that the lender had a perfected security interest in the “capital account” of the borrower (the borrower was a partner in a law firm).

The lender claimed to have taken a security interest in the capital account but failed to have the borrower sign a security agreement. The only security documents the lender had were the loan agreement and a comfort letter from the law firm. The Master said that neither document contained the necessary pledging or charging language that is required under the Alberta PPSA. The employees of the lender testified that it was understood by the lender and the borrower that the lender had been given a security interest in the capital account. However without the necessary supporting documentation, the intention of the lender was irrelevant.

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