Blocked Account Control Agreement Template for Canada

A Blocked Account Control Agreement (BACA) is a critical legal document that gives lenders control over borrower deposit accounts as security for loans and credit facilities. Under Canadian law, this agreement allows you to perfect security interests in deposit accounts, ensuring your collateral package includes comprehensive control over cash flows and account balances.

When do you need this document?

You need a BACA when extending secured credit where deposit account control is essential for your security position. This typically occurs in asset-based lending where borrowers maintain operating accounts that serve as collateral, project finance transactions requiring cash flow control during construction and operation phases, and syndicated credit facilities where multiple lenders need coordinated account oversight. The agreement becomes particularly important when borrowers have significant cash balances that represent a material portion of your security package, or when you need to ensure loan proceeds are used for specified purposes.

Key legal considerations

The agreement must clearly establish the nature and extent of account control, defining when you can issue blocking instructions and what triggers such control mechanisms. Key provisions include the bank's obligation to comply with your instructions over those of the account holder, procedures for releasing funds for approved purposes, and protocols for handling conflicting instructions. You should address the account holder's retained rights during normal operations, such as making routine business payments, while ensuring your security interest remains enforceable. The agreement must also specify notice requirements, cure periods for defaults, and termination procedures that protect all parties' interests.

Legal requirements in Canada

Under the Bank Act and provincial Personal Property Security Acts, you must properly document and perfect your security interest in deposit accounts through control arrangements. The BACA must comply with anti-money laundering requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, including customer identification and reporting obligations. Privacy considerations under PIPEDA require careful handling of account holder information shared between parties. Provincial PPSA requirements vary slightly across jurisdictions, so ensure your agreement addresses specific perfection and priority rules applicable in your borrower's province. The depositary bank must have legal authority to enter the agreement and comply with its regulatory obligations while honoring the control arrangement.