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TRANSCRIPT
10/22/2015
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UCC Article 9
The BasicsIncluding PMSI & SPRS
2015
This presentation is not intended to serve as legal advice. You should not act or rely on any information contained in this presentation without first seeking the advice of an attorney.
Presented By:
Paul HodnefieldAssociate General CounselCorporation Service Company
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UCC Article 9 Governs Security InterestsA consensual lien.
Critical TermsPerfectionPriority
Critical ConceptsNotice FilingAllocation of RiskRole of the Filing Office
Overview
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Purpose of PerfectionPermit third parties to protect themselves prior to entering into a transaction with the debtor.
Methods of PerfectionFilingPossessionControlAutomatic
Effect of PerfectionMakes the security interest enforceable against the rights of third parties.
Perfection
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Priority Defined:Order in Which Competing Claims are Satisfied.
General Rule - § 9-322Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest… is first perfected.
Exceptions:Purchase-Money Security InterestMethod of perfection Filing location – recorded real estate interests
Importance of Priority:First priority claim is paid in full before subordinate claim receives anything.
Priority
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1. Secured CreditorsPaid from liquidation of collateral.
2. Administrative CostsAttorneys fees, asset preservation, etc.
3. Priority ClaimsSpecial status granted for unpaid taxes, unpaid wages and other claims such as child support.
4. General CreditorsTrade creditors.Lien creditors.Unperfected claims of secured creditors.
Priority in Bankruptcy Example
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Purchase-Money Security InterestException to the “first to file” rule.
DefinedA security interest in favor of:1. The seller of an item to secure its price, or 2. A person who advances funds to enable the debtor to
acquire rights in the collateral.
Priority EffectA perfected PMSI in goods takes priority over even prior conflicting security interests.
Priority Exception - PMSI
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Perfection Requirements General Rule:
• Perfect by filing before, or within 20 days after, debtor receives possession of the collateral.
Special Rule (Inventory, Livestock or Consignment):• Perfect by filing before debtor receives possession of the collateral.
Notice Requirement Applies only to collateral consisting of inventory, livestock or consigned goods.
Timing:• Notice must be received by the holder of a conflicting security
interest before debtor receives possession of the collateral.
PMSI Requirements
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The UCC is a notice filing system. UCC records do not provide all details of the transaction.
Interested parties have a duty of further inquiry.
No “chain of title.”
Search & Filing is a machine process. Operates without human judgment or discretion.
Medium Neutrality Records submitted electronically are effective to the same extent as those submitted as written records.
Other Essential UCC Concepts
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Requirements for Sufficiency Debtor Name
Secured Party Name
Indication of Collateral
Requirements for Filing All based on information necessary for filing office to index and retrieve the record.
Different from requirements for sufficiency or effectiveness.
Filing office does not determine effectiveness.
Effectiveness of Filed Records UCC records are effective to the extent they were filed by a person that may do so under § 9-509.
Effectiveness cannot be determined from the record!
Filed ≠ Effective
Other Essential UCC Concepts
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Role of the Filing Office is MinisterialArticle 9 removed filing office discretion from the filing and search process.General Rule: A filing office has no power to make a record effective or ineffective.
Filing Duties Index records for retrieval by debtor name or file number.Reject only for a reason set forth in § 9-516(b). Policy of Article 9 is a bias in favor of filing.
Search Duties Report only records that exactly match the search criteria after applying the standard search logic, if any. Not all filing offices provide searches. Many only provide access to the data.
The Filer or Searcher Must Get it Right!
Role of the Filing Office
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Basics & Best Practices
Filing UCC Records
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When to FileAnytime. See UCC § 9-502(d).
General Rule for Duration of EffectivenessFinancing statements are effective for 5 years from time of filing.
Exceptions:• Transmitting Utility
• Public-Finance or Manufactured-Home Transaction
• Wyoming
Continuation of EffectivenessFiling of a continuation statement extends effectiveness for an additional 5-year period.
Must be filed within 6 months prior to lapse date.
UCC Filing – Timing & Effectiveness
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Governing Law – § 9-301: Generally, the state where debtor is located under § 9-307.
Filing Office – § 9-501: Identifies the correct filing office within the state based on the type of collateral.
General RuleCentral filing office designated by § 9-501(a)(2) of the state where the debtor is located.
No Filing Requirement?Debtor is deemed located in the District of Columbia.
UCC Filing Location
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Central Filing Office – § 9-501(a)(2): Usually secretary of state or similar office.
Exception: No Central Filing OfficeGeorgia
Louisiana
Exception: Real-Estate-Related CollateralFixtures
Timber to be Cut
Minerals to be Extracted
Central Filing
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Filing Office – § 9-501(a)(1): Office where a mortgage would be filed or recorded on the related real property.
MethodsFixture filing, § 9-102(a)(40)
Record of mortgage, see § 9-102(a)(55)
Purpose of Real Estate UCC FilingInterests in real-estate-related collateral may also arise under real estate law.
Filing in the real estate records establishes priority in relation to recorded property interests.
Filing in Real Estate Records
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Debtor Information Name
Address
Secured Party Information Name
Address
Indication of the Collateral
UCC Financing Statement Contents
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Purpose of Debtor Name Field:To allow retrieval of the record using clear and consistent rules.
Debtor Name Requirements in § 9-503(a) Provides for sufficiency of name on financing statement, not necessarily the actual name of the debtor.
The Name Field is the Debtor Name!Filing office indexes name field exactly as presented.
Text is only a Debtor Name if in Name Field!Filing office indexes only name fields.
UCC Filing Basics – Debtor Name Concepts
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Name on Financing Statement:
As Indexed by New York Dept of State:
Indexing Example
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Registered Organizations Includes Corps, L.L.C.s, Business Trusts, etc.Provide the name exactly as it appears in the “public organic record.”
Individuals.Provide name indicated on the debtor’s driver’s license or other source as set forth in the filing state’s version of § 9-503(a)(4).
Collateral Administered by Personal RepresentativeUse individual name of decedent.
• Check box to indicate status of the collateral.
§ 9-503(a) Debtor Name Requirements
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Collateral Held in a TrustThe name of the trust if it has a name, otherwiseThe name of the settlor.
• Provide descriptive information about the trust in a separate part of the financing statement.
Indicate the collateral is held in a trust.
Other OrganizationsProvide name, if it has a name, otherwise provide names of persons and entities that comprise the debtor.
Debtor has No NameProvide the name(s) of the individuals and entities that comprise the debtor as if each was the debtor.
§ 9-503(a) Debtor Name Requirements
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Debtor name must comply with §9-503(a).Even minor deviations can make the financing statement seriously misleading. §9-506(b)Not determined by filing office discretion.
Savings ClauseSearch on correct name discloses financing statement that fails to sufficiently provide debtor name. § 9-506(c).Permissible deviations in most states:
• Spacing• Punctuation• Noise Words• Beginning “The”
UCC Debtor Name Sufficiency
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HORSECAVEFAMILYAPTS
HORSECAVEFAMILYAPARTMENTS
Standard Search Logic
Financing Statement
Formation Document
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Debtor AddressRecord must provide a mailing address.
Debtor Organization InformationNo longer required except in NY.
Secured Party Name & AddressSecured party name is not held to same strict rules as a debtor name.
CollateralMerely needs to “reasonably indicate” what is covered by the security interest.
UCC Filing Basics – Other Information
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The Flip Side of the Filing Coin
UCC Search Basics
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General Rule:Searcher beware!
Searcher’s Responsibilities:Conduct a diligent search.
Exercise reasonable diligence investigating the results.
Duty of Further InquirySearchers are not entitled to rely solely on the contents of the public record.
Risk for SearcherLoss of priority.
UCC Search Basics
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Search Location:Mirrors filing location rules.
May require additional locations if search includes tax liens.
Name(s) to Search:Debtor’s current correct name under § 9-503(a).
Former names of the debtor. § 9-507(c).
Names of merged or acquired entities. § 9-508(b).
Name of debtor’s collateral transferor. § 9-315(a).
Search LogicUse method that returns name variations.
Filing office standard search logic is too strict.
UCC Search Elements
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Verify Search Includes Copies of All Records:Courts impute to the searcher knowledge of the full contents of each filed record.
Compare Copies with Summary Listing:Reconcile file numbers, file dates and other information.
Discrepancies must be explained and understood.
Determine Effect of RecordGive filer benefit of any doubt.
Understand the effect of all UCC3 Amendments.
UCC Search Interpretation
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The Termination ShortcutAllegedly “terminated” financing statements may be fully effective.
Collateral InterpretationThe same asset can be covered through any number of different collateral descriptions.
Effect of UCC3 AssignmentAssignor remains a secured party of record.
Failure to Conduct Further InquirySearchers cannot rely on the public record alone.
UCC Search Traps for the Unwary
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Paul HodnefieldAssociate General CounselCorporation Service Company800-927-9801, ext. #[email protected]: 952-649-1555
The End
Questions?