Alerts

Foreign UCC Debtors

Revised Article 9 states that the proper place to file a financing statement for a foreign debtor is in the District of Columbia, UNLESS the foreign jurisdiction in which that debtor is located maintains a system to perfect security interests by filing or recordation.

But which foreign countries are considered to have filing systems equivalent to the United States, and which are merely exotic tourist destinations?

The UCC Committee of the California Bar Association tackled this thorny issue by studying the filing regimes of 74 countries from Albania to Vietnam. Their results were published in the UCC Law Journal in 2006. 39 U.C.C. L.J. 109 (Nov. 2006).

Hopefully this study will provide guidance to lawyers and secured lenders. Capitol Services cannot provide legal advice or assistance in determining where to file.

Terminating a Delaware Corporation

Corporations ending their Delaware existence must first file all applicable annual reports. This may be done either prior to or concurrently with the filing which is terminating existence (i.e., merger, dissolution, withdrawal, or conversion).

Note that this requirement only applies to corporations, not to limited partnerships or limited liability companies.

States Build Safe Harbors for
Individual Debtor Names

Tennessee and Nebraska recently joined Texas in introducing legislation designed to build a safe harbor in the current sea of uncertainty that surrounds the correct name of a debtor who is an individual. Unfortunately, each state has charted a unique course. Texas said that the correct name of an individual may be the name as given on the individual’s state issued driver’s license. Tennessee said that the correct name may be the name as given on the individual’s state issued driver’s license, or birth certificate, or social security card, or a variety of other IDs. Not to be out done in the race to build a port in the storm, Nebraska said that the financing statement is sufficient if it merely indicates the debtor’s correct last name. So what does this mean to me as a filer and a searcher? Some believe that these safe harbors help filers and hurt searchers.

However, what hurts searchers also hurts filers because filers typically search before and after they file. If a lender files under a safe harbor name (individual’s current ID), the lender will still need to search under other names because past filings under other names used by the individual may also be deemed to be correct in addition to the safe harbor name. So, perhaps these safe harbors are not really that safe after all – time will tell but you shouldn’t remove your life jacket. Considering the possible confusion offered by the Texas and Tennessee approaches, the Nebraska approach is simple but completely unworkable.

If all the filer needs to do is get the last name right then searchers will be forced to search by last name only to reflect every financing statement that matches the last name without any regard to an individual’s first or middle name. So, instead of reviewing a couple of filings related to Robert Johnson, a searcher will be required to review a few thousand. To stay out of this sea of uncertainty that requires safe harbors, maybe a better idea is to require that the individual form a registered entity.

Searching During The Transition

Searching during the RA9 transition period is problematic because financing statements recorded in compliance with prior law place of filing rules remain effective until their lapse date or June, 30, 2006, whichever occurs first. However, state legislatures in Alabama and Arizona enacted unique RA9 transition periods ending December 31, 2006, and June 30, 2007, respectively.
Under prior law, financing statements related to personal property were properly recorded in the jurisdiction where property subject to a security interest was located, whereas under RA9, financing statements are properly filed when recorded only in the jurisdiction where the debtor is located or organized without regard to where the property is located.

Therefore, to discover all financing statements that may judged to be effective during the RA9 transition period, searches must be conducted in both the proper RA9 filing office and the prior law filing office(s).

Searching Individual Debtor Names
Under UCC Revised Article 9

Revised Article 9 of the Uniform Commercial Code placed greater responsibility on secured parties to use the correct debtor name when preparing financing statements. RA9 provides that a financing statement is effective only if recorded under the “correct name” of the debtor. A small safety net is provided to give effectiveness to financing statements recorded under the incorrect name of the debtor, but only if the filing is revealed by a search under the correct name of the debtor using the filing office standard search logic. This saving provision of RA9 is dependent upon the flexibility of filing office search logic, which is generally limited to the elimination of punctuation and common business endings contained in organization names.

The correct name of a debtor that is an organization may be determined by reviewing public records from the state registry where the debtor was created or organized. However, determining the correct name of a natural person may prove to be more difficult depending upon the individual’s adoption and usage of names.

How should UCC searchers determine the correct name(s) of an individual debtor when obtaining searches? They may review personal documents such as a birth certificate, driver’s license, or Social Security card. Bank and tax records may also help determine names that have been adopted and used by the individual.

However, as several recent bankruptcy decisions have demonstrated, courts may find that names other than the legal given name of an individual debtor are correct names for purposes of determining the effectiveness of filings. While it is unclear how courts may view nicknames such as Bubba, Bud or T.J., if it is known that the debtor uses such names it may be prudent to search under those names as well.