UCC Article 9 2010 Amendments

Amendments to UCC Article 9 (the “2010 Amendments”) were drafted and approved by the Uniform Law Commission (“ULC”) and the American Law Institute in 2010.   Article 9 governs secured transactions in personal property.  Article 9 applies, for example, when a lender finances accounts receivable or a consumer finances a retail purchase.  Priority among creditors is established pursuant to the rules of Article 9, in particular the perfection rules of Article 9 which establish who has first priority in collateral among competing creditors.  Substantial revisions to Article 9 were made in 1998 and were adopted in all states.

The 2010 Amendments are designed to go into effect simultaneously on July 1, 2013.   The 2010 Amendments to Article 9 modify Article to address debtor’s names, filing issues and other matters.

Individual Debtor Names

The 2010 Amendments provide greater guidance as to the name of an individual debtor to be provided on a financing statement.  The amendments offer two alternatives:

Under Alternative A, if the debtor does not hold a driver’s license issued by the state in which the financing statement is filed, then either of the following names for the debtor would be sufficient as the debtor’s name on the financing statement: (1) the individual name of the debtor, as under current Article 9, or (2) the debtor’s surname and first personal name.

Under Alternative B, any of the following names for the debtor would be sufficient as the debtor’s name on the financing statement: (1) the debtor’s name as shown on the debtor’s driver’s license if the debtor holds an unexpired driver’s license issued by the state, (2) the individual name of the debtor, as under current Article 9, or (3) the debtor’s surname and first personal name. Alternative B has been called the “safe harbor” approach, in contrast to the “only if” approach reflected in Alternative A.

Under either Alternative A or Alternative B, if the debtor holds two driver’s licenses issued by the state, the most recently issued driver’s license is the one to which reference should be made to determine the debtor’s name to be provided on the financing statement.

Registered Organization Names

The Amendments also modify the definition of “registered organization” to reflect that an organization is a registered organization if it is formed or organized solely under the law of a single state by the filing of a public record with the state rather than, as under current Article 9, by the state merely being required to maintain a public record showing that the organization has been organized. The Amendments also expand the definition of “registered organization” to include a common law trust that is formed for a business or commercial purpose and is required by a state’s business trust statute to file with the state an organic record, such as the trust agreement for a common law trust.

To address practice concerns surrounding determination of  the name of a debtor that is a registered organization for the purpose of providing that debtor’s name on a financing statement where there may be more than one name of a registered organization reflected on a state’s public record, the 2010 Amendments clarify that, for a financing statement to be sufficient, the name of the registered organization debtor to be provided on the financing statement is the name reflected on the “public organic record” of the registered organization. In most cases, a registered organization’s “public organic record” is the publicly available record filed with the state to form or organize the registered organization.  The 2010 Amendments also provide clarification of debtor names when collateral is held in trust or administered by a personal representative.

After-acquired Property

Next, the 2010 Amendments address maintaining a security interest in after-acquired property where the debtor changes its location to a new jurisdiction.  Under current Article 9, if a debtor changes its location to a new jurisdiction, a secured party whose security interest was perfected by filing in the original jurisdiction has a period of up to four months to continue the perfection of its security interest by filing a financing statement in, or otherwise perfecting the security interest under the law of, the new jurisdiction. The four-month grace period applies, however, only to collateral in which the secured party’s security interest was perfected at time of the change of location.  There is no grace period under current Article 9 to address after-acquired property in this scenario, so the 2010 Amendments provide that a financing statement filed in the original jurisdiction is effective with respect to collateral acquired within four months after the debtor’s location changes.  A similar grace period is also provided for in the 2010 Amendments where a new debtor is added in an interstate merger.

Enactment

According to the ULC, as of the date of this article, the following jurisdictions have enacted the 2010 Amendments: Connecticut, Indiana, Minnesota, Nebraska, Nevada, North Dakota, Oregon, Puerto Rico, Rhode Island, South Dakota, Texas, Virginia, Washington, West Virginia

The 2010 Amendments are under consideration this year in the following jurisdictions according to the ULC: Colorado, District of Columbia, Florida, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, New Hampshire, New Mexico, Ohio, Oklahoma, Pennsylvania, Tennessee, Wisconsin

References: http://www.uniformlaws.org; and http://apps.americanbar.org/buslaw

For media inquiries, please contact: Erin Molinaro | ekm@crlaw.com