• Part 5: Part 5: Priority

    • Article 24 - Default priority rules

      (1) If these Regulations do not otherwise determine priority between conflicting Security Interests, the following rules apply:
      (A) a perfected Security Interest has priority over an unperfected Security Interest;
      (B) priority between perfected Security Interests is determined by the order of perfection;
      (C) priority between unperfected Security Interests is determined by the order of attachment.
      (2) For the purposes of this Part the priority of a Security Interest in Collateral also determines the priority of a perfected Security Interest in Proceeds of, and any Supporting Obligation supporting, the Collateral.
      (3) A transferee of a Security Interest has the same priority with respect to perfection of the Security Interest as the transferor had at the time of transfer.
      (4) A Security Interest provided for by a Security Agreement has the same priority in respect of all Advances (including future Advances), and the performance of all obligations, secured by the Security Agreement.

    • Article 25 - Priority: Investment Property

      Priority between conflicting Security Interests in the same Investment Property is as follows:

      (A) a Security Interest perfected by control has priority over a Security Interest which is not perfected by control;
      (B) subject to (C) and (D), conflicting Security Interests perfected by control rank according to the order in which control was obtained;
      (C) a Security Interest held by a Securities Intermediary in a Security Entitlement or a Securities Account maintained with the Securities Intermediary has priority over a Security Interest held by any other Secured Party;
      (D) a Security Interest held by a Commodity Intermediary in a Commodity Contract or a Commodity Account maintained with the Commodity Intermediary has priority over a conflicting Security Interest held by any other Secured Party;
      (E) conflicting Security Interests granted by a Securities Intermediary or Commodity Intermediary which are perfected otherwise than by control rank equally;
      (F) a Security Interest in a Certificated Security in registered form which is perfected by possession and not by control has priority over a conflicting Security Interest perfected by filing; and
      (G) in all other cases, priority among conflicting Security Interests in Investment Property is governed by Article 24 (Default Priority Rules) .

    • Article 26 - Priority: Bank Accounts

      (1) Priority between conflicting Security Interests in the same Bank Account is as follows:
      (A) a Security Interest perfected by control has priority over a Security Interest which is not perfected by control;
      (B) subject to 26 (C), conflicting Security Interests perfected by control rank according to the order in which control was obtained;
      (C) if the Bank with which the Bank Account is maintained is itself a Secured Party, the Bank has priority over any other Secured Party except one which has taken control by becoming the account holder; and
      (D) in all other cases, priority among conflicting Security Interests in Bank Accounts is governed by Article 24 (Default Priority Rules).
      (2) For the avoidance of doubt, unless otherwise agreed in writing by the Bank and the Secured Party, a Bank may exercise any right of set-off against a Secured Party which holds a Security Interest in a Bank Account held with the Bank unless:
      (A) the Secured Party has taken control of the Bank Account by becoming the account holder; and
      (B) the set-off is based on a claim against the Debtor.

    • Article 27 - Priority: Letter of credit rights

      (1) Priority between conflicting Security Interests in the same letter of credit right is as follows:
      (A) a Security Interest held by a Secured Party which has control of the letter of credit right under paragraph (2) has priority to the extent of its control over a conflicting Security Interest held by a Secured Party that does not have control;
      (B) Security Interests perfected by control rank according to priority in time of obtaining control; and
      (C) in all other cases, priority among conflicting Security Interests in the same letter of credit right is governed by Article 24 (Default Priority Rules).
      (2) A Secured Party has control of a letter of credit right to the extent of any right to payment or performance by the issuer or any Nominated Person if the issuer or Nominated Person has consented to an assignment of Proceeds of the letter of credit.

    • Article 28 - Priority: Purchase Money Security Interests

      (1) A Purchase Money Security Interest in Collateral or its Proceeds, other than Inventory or Intangibles, has priority over a non-purchase money Security Interest in the same Collateral given by the same Debtor if the Purchase Money Security Interest in the Collateral or its Proceeds is perfected not later than 10 working days after the day on which the Debtor, or another person at the request of the Debtor, obtained possession of the Collateral, whichever is earlier.
      (2) A Purchase Money Security Interest in Inventory or its Proceeds has priority over a non-purchase money Security Interest in the same Collateral given by the same Debtor if the Purchase Money Security Interest in the Inventory or its Proceeds is perfected at the time the Debtor, or another person at the request of the Debtor, obtains possession of the Collateral, whichever is earlier.
      (3) A Purchase Money Security Interest in an intangible or its Proceeds has priority over a non-purchase money Security Interest in the same Collateral given by the same Debtor if the Purchase Money Security Interest in the intangible or its Proceeds is perfected not later than 10 working days after the day on which the Security Interest in the Intangible attached.
      (4) A non-proceeds Security Interest in an Account that is given for new value has priority over a Purchase Money Security Interest in the Account as Proceeds of Inventory if a Financing Statement relating to the Security Interest in the Account is registered before the Purchase Money Security Interest is perfected or a Financing Statement relating to it is registered.
      (5) A Purchase Money Security Interest in Goods or their Proceeds taken by a seller, lessor, or consignor of the Collateral, has priority over any other Purchase Money Security Interest in the same Collateral given by the same Debtor if the first-mentioned Purchase Money Security Interest in the Goods or their Proceeds is perfected,—
      (A) in the case of Inventory, at the time the Debtor, or another person at the request of the Debtor, obtained possession of the Collateral, whichever is earlier; or
      (B) in the case of Collateral, other than Inventory, not later than 10 working days after the day on which the Debtor, or another person at the request of the Debtor, obtained possession of the Collateral, whichever is earlier.
      (6) Priority between Purchase Money Security Interests in the same Goods or their Proceeds that have not been taken by a seller, lessor, or consignor, and that have been given by the same Debtor are to be determined in accordance with Article 24 (Default Priority Rules).

    • Article 29 - Priority: Security Interests in transferred Collateral

      A Security Interest created by a Debtor is subordinate to a Security Interest in the same Collateral created by another Person ("the earlier Security Interest.) if:

      (A) the Debtor acquired the Collateral subject to the earlier Security Interest;
      (B) the earlier Security Interest was perfected when the Debtor acquired the Collateral; and
      (C) there has been no period after the Debtor acquired the Collateral when the earlier Security Interest was unperfected.

    • Article 30 - Priority: transferees of Money

      A transferee of Money or funds from a deposit account takes the Money or funds free of any perfected or unperfected Security Interest in it if the holder:

      (A) acquires the Money or funds without knowledge that it is subject to a Security Interest; or
      (B) acquires the Money or funds for value in the ordinary course of business, whether or not the holder acquires the Money without knowledge that it is subject to a Security Interest.

    • Article 31 - Priority: creditor who receives payment of a debt

      A creditor who receives payment of a debt owing by a Debtor through a Debtor-Initiated Payment has priority over a Security Interest in:

      (A) the funds paid;
      (B) the Intangible which was the source of the payment; and
      (C) any Instrument used to effect the payment,

      unless, at the time of payment, the creditor had actual knowledge that the payment was made in breach of the Security Agreement that provides for the Security Interest.

    • Article 32 - Priority: Purchaser of negotiable instrument

      A purchaser of a negotiable Instrument has priority over any perfected or unperfected Security Interest in the Instrument if the purchaser:

      (A) acquired the Instrument for value; and
      (B) took possession of the Instrument,
      unless—
      (C) in the case of a purchaser who acquired the Instrument in the ordinary course of that person's business of acquiring Instruments of that kind, the purchaser had actual or constructive knowledge that the acquisition constituted a breach of the Security Agreement that provides for the Security Interest; or
      (D) in the case of any other purchaser, the purchaser had actual or constructive knowledge of the Security Interest.

    • Article 33 - Priority: Holder of negotiable document of title

      A holder to whom a negotiable Document of Title is negotiated has priority over a perfected or unperfected Security Interest in the Document of Title if the holder acquired the Document of Title for value, unless

      (A) in the case of a holder who acquired the Document of Title in the ordinary course of that person's business of acquiring Documents of Title of that kind, the purchaser had actual or constructive knowledge that the acquisition constituted a breach of the Security Agreement that provides for the Security Interest; or
      (B) in the case of any other purchaser, the purchaser had actual or constructive knowledge of the Security Interest.

    • Article 34 - Priority: Assignee of Chattel Paper

      The interest of an assignee of Chattel Paper who takes possession of the Chattel Paper in the ordinary course of the assignee's business and for new value has priority over a Security Interest in the Chattel Paper

      (A) that was perfected, if the assignee took possession of the Chattel Paper without knowledge of the Security Interest; or
      (B) that has attached to Proceeds of Inventory, whether or not the assignee took possession of the Chattel Paper without knowledge of the Security Interest.

    • Article 35 - Priority: Financial Collateral

      (1) The Security Interest in Financial Collateral of a Secured Party under a Title Transfer Financial Collateral Arrangement has priority over a conflicting Security Interest in the Financial Collateral.
      (2) The Security Interest in Financial Collateral of a Secured Party under a Security Financial Collateral Arrangement has priority over a subsequent Security Interest in favour of the relevant Intermediary.
      (3) Subject to paragraphs (1) and (2), the priority of any other Security Interest in Financial Collateral shall be determined in accordance with—
      (A) Article 25 if the Financial Collateral is Investment Property; and
      (B) Article 30 if the Financial Collateral is Money.

    • Article 36 - Execution creditor has priority over unperfected Security Interest

      A Security Interest in Collateral is subordinate to the interest of a Person:

      (A) who causes the Collateral to be seized in accordance with due process to enforce a judgment, including execution, attachment or garnishment; or
      (B) who has obtained a charging order or equitable execution which affects or relates to the Collateral,

      If, at the time that Person's interest arises, the Security Interest is not perfected.

    • Article 37 - Priority: liens

      If a Person in the ordinary course of business supplies materials or services with respect to Goods which are subject to a Security Interest, a lien that the Person has over the Goods with respect to those materials or services has priority over a perfected or unperfected Security Interest.

    • Article 38 - Priority: Personal Property brought into the QFC

      A Security Interest which remains perfected under Article 20 is subordinate to the interest of a purchaser or lessee of the Personal Property who acquires the interest:

      (A) after the Personal Property has been brought into the QFC;
      (B) without knowledge of the Security Interest; and
      (C) before it is perfected under these Regulations.

    • Article 39 - Priority: Goods returned or repossessed

      (1) A Security Interest in Goods which a transferee of an Account has under Article 21(3) is subordinate to a perfected Security Interest arising under Article 21(1) and to a Security Interest of a transferee of Chattel Paper arising under Article 21(3).
      (2) A Security Interest in Goods given by a purchaser or lessee of the Goods mentioned in Article 22(1) which:
      (A) attaches while the Goods are in the possession of the purchaser, lessee or Debtor; and
      (B) is perfected before the Goods are returned, seized or repossessed,
      has priority over a Security Interest in the Goods arising under Article 21.

    • Article 40 - Voluntary subordination

      (1) A Secured Party may, in a Security Agreement or otherwise, subordinate its Security Interest to any other interest.
      (2) An agreement to subordinate is effective according to its terms between the parties and may be enforced by a third party if the third party is the person or one of a class of persons for whose benefit the subordination was intended.
      (3) An agreement or undertaking to postpone or subordinate:
      (A) the right of a Person to performance of all or any part of an obligation to the right of another Person to the performance of all or any part of another obligation of the same Debtor; or
      (B) all or any part of the rights of a Secured Party under a Security Agreement to all or any part of the rights of another Secured Party under another Security Agreement with the same Debtor,
      does not, by virtue of the postponement or subordination alone, create a Security Interest.