Inventory Security Agreement for Canada

Inventory Security Agreement Template for Canada

A comprehensive security agreement used in Canadian jurisdictions to create and perfect a security interest in a borrower's inventory under the applicable Personal Property Security Act (PPSA) or Quebec Civil Code. This document establishes the lender's security interest in the borrower's inventory, including both present and after-acquired inventory, and sets out the rights, obligations, and remedies of the parties. It includes detailed provisions for inventory maintenance, reporting requirements, insurance obligations, and enforcement mechanisms, ensuring compliance with provincial secured transactions law while providing effective security for inventory-based financing.

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What is a Inventory Security Agreement?

The Inventory Security Agreement serves as a crucial document in Canadian commercial financing transactions, providing lenders with security over a borrower's inventory assets. This agreement is essential when businesses seek financing using their inventory as collateral, particularly in sectors with significant inventory holdings. The document must comply with the applicable provincial Personal Property Security Act (PPSA) or Quebec Civil Code requirements for creating and perfecting security interests. It typically accompanies a primary credit agreement or loan agreement and includes detailed provisions for inventory description, maintenance, reporting, and enforcement rights. The agreement is particularly important for businesses seeking working capital financing or inventory-based credit facilities, and it must be carefully drafted to ensure enforceability and proper protection of the lender's security interest across Canadian jurisdictions.

What sections should be included in a Inventory Security Agreement?

1. Parties: Identification of the secured party (creditor) and debtor, including full legal names and addresses

2. Background: Context of the security agreement, reference to any related agreements (e.g., loan agreement), and purpose of the security interest

3. Definitions: Key terms used throughout the agreement, including definition of 'Collateral', 'Event of Default', 'Permitted Liens', etc.

4. Grant of Security Interest: Express creation and grant of the security interest in the inventory collateral

5. Description of Collateral: Detailed description of the inventory subject to the security interest, including present and after-acquired inventory

6. Representations and Warranties: Debtor's declarations regarding ownership, condition, and status of inventory

7. Covenants: Debtor's ongoing obligations regarding maintenance, insurance, reporting, and handling of inventory

8. Use and Verification: Terms governing the debtor's use of inventory and creditor's right to verify and inspect

9. Events of Default: Circumstances constituting default under the agreement

10. Remedies: Creditor's rights and remedies upon default, including PPSA remedies

11. Further Assurances: Obligation to execute additional documents and take necessary actions to perfect security interest

12. General Provisions: Standard clauses including notices, amendments, governing law, etc.

What sections are optional to include in a Inventory Security Agreement?

1. Third Party Waivers: Required when inventory is stored at third party locations, obtaining waiver of third party rights

2. Purchase Money Security Interest: Include when the security interest qualifies as PMSI under PPSA for super-priority

3. Subordination Provisions: Required when there are multiple secured creditors and priority arrangements

4. Cross-Collateralization: When inventory secures multiple obligations or relates to other security agreements

5. Insurance Requirements: Detailed insurance provisions when inventory value or nature requires specific coverage

6. Consignment Provisions: When inventory includes goods held on consignment

7. Electronic Records: Specific provisions for maintaining electronic inventory records and reporting

8. Foreign Jurisdiction Provisions: When inventory may be located in multiple provinces or internationally

What schedules should be included in a Inventory Security Agreement?

1. Schedule A - Inventory Description: Detailed description of inventory including categories, locations, and identification methods

2. Schedule B - Permitted Locations: List of approved locations where inventory may be stored or maintained

3. Schedule C - Reporting Requirements: Forms and procedures for inventory reporting and monitoring

4. Schedule D - Insurance Requirements: Specific insurance requirements and approved insurers

5. Schedule E - Third Party Locations: List of third party storage locations and corresponding waiver requirements

6. Schedule F - Existing Liens: Disclosure of any existing liens or encumbrances on the inventory

7. Appendix 1 - Form of Inventory Report: Standard form for periodic inventory reporting

8. Appendix 2 - Form of Third Party Waiver: Standard form for third party warehouse or storage location waivers

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

Canada

Publisher

Genie AI

Document Type

Security Agreement

Cost

Free to use
Relevant legal definitions
Clauses
Relevant Industries

Manufacturing

Retail

Wholesale Distribution

Automotive

Consumer Goods

Agriculture

Pharmaceuticals

Electronics

Construction Materials

Food and Beverage

Textiles

Industrial Equipment

Commodities Trading

Logistics and Warehousing

Relevant Teams

Legal

Finance

Treasury

Operations

Risk Management

Supply Chain

Inventory Control

Commercial Banking

Credit Administration

Compliance

Warehouse Operations

Relevant Roles

Chief Financial Officer

Treasury Manager

Credit Manager

Commercial Lending Officer

Corporate Lawyer

Legal Counsel

Risk Manager

Inventory Control Manager

Operations Director

Finance Director

Warehouse Manager

Supply Chain Manager

Commercial Banking Officer

Collateral Manager

Security Administrator

Industries
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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