Account Control Agreement Perfection

For an insured lender, cash is often the most critical security. Borrowers usually hold cash in deposit accounts with a bank. Therefore, a lender will want to get a perfected security interest for these deposit accounts in order to have a perfected security interest for that cash. The recent financial crisis has shown that cash is indeed king in many ways, especially as a form of security. Therefore, interested parties would be well advised to ensure that they have a properly developed collateral interest in a debtor`s current accounts. In this context, interested parties should consider adding a language to their control agreements in order to avoid a potential pitfall. A problem could arise if the control agreement and the “customer contract” concluded between the depositary bank and the debtor as a customer in the context of the opening of the account explicitly provide for a specific but differentiated jurisdiction as the jurisdiction of the bank for the purposes of the PEC, given that any agreement “would constitute an agreement between the bank and its customer, who regulates the current account”. The same problem could arise if neither the control contract nor the customer contract explicitly provides for the competence of the bank, but any such agreement provides that it is subject to the law of a specific but different jurisdiction. In order to avoid such problems, all secured parties should (i) encourage their supervisory agreements to explicitly declare that a given jurisdiction is the jurisdiction of the bank within the meaning of the PEC and (ii) consider adding to their supervisory agreements the following provision (or corresponding terms): A hedging interest in the accounts can be further developed by taking control of the account. Almost all of the borrower`s accounts will be at your bank – you have control of this and nothing more can be needed for perfection. Each custodian bank often has its own form of DACA, although the elements listed above of any form are common.

AACs are discussed and negotiated. Therefore, borrowers and lenders should realize that it may take some time before a DACA is agreed and signed by all parties for the lender to benefit from an advanced security interest for a deposit account. A lender may establish “control” in one of the following ways: (i) the borrower maintains his or her deposit account directly with the lender; 2. the lender becomes the beneficial owner of the borrower`s deposit accounts with the borrower`s custodian banks; or (3) the lender and borrower enter into a deposit account control agreement (known as DACA) with the borrower`s custodian bank. In any case, these agreements apply in addition to the hedging agreement by which the borrower grants a hedging interest for his current accounts. In 2012, the Ontario Bar Association proposed amendments to the PPSA that would follow the example of the United States and recommended that the PPSA ensure perfection by controlling the interest on securities on cash accounts. The Recommendation contains a proposal that would create a type of collateral known as a financial account and that allow for perfection through control and that provides that one secure party that controls such collateral takes precedence over another that has no control. A panel led by the Ontario Ministry of Government and Consumer Services in 2015 also recommended amending the ASPP to facilitate the use of cash as an effective and reliable guarantee, which could be done in two ways: (i) by successfully refining the security interests of deposit accounts through “control”; and (ii) provided that security interests, when perfected, clearly and securely prevail over competing interests. . .

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