UCC Article 9 Update Stay in compliance & be prepared for

upcoming changes

1

Today’s Agenda• MODULE # 1 – Secured Transactions Governed by Article 9

• MODULE # 2 – Changes to UCC Article 9

• MODULE # 3 – Creating a Security Interest

• MODULE # 4 – Perfecting a Security Interest or Agricultural Lien

• MODULE # 5 – Priority of Security Interests

2

MODULE # 1 – Secured Transactions Governed by Article 9

3

Overview of Article 9

UCC Article 9 deals with secured transactions in personal property such as:

chattelsrolling stockmachineryequipment

It sets forth procedures by which to:establishperfectmaintainenforce

A secured interest. 4

Exclusions - Insurance

Article 9 does not apply to a transfer of an interest in or assignment of a claim under a policy of insurance, except when the interest in insurance represents proceeds of collateral or is an assignment of a healthcare insurance receivable.

5

Exclusions – Tort ClaimsArticle 9 does not apply to an assignment of a

tort claim, except when the claim is a commercial tort claim or the tort claim is a proceed of collateral.

6

Exclusions - Consumer Transaction Deposit Account Assignments of a deposit

account in consumer transactions, e.g., checking or savings account maintained at a bank or credit union, are excluded from Article 9.

7

Exclusions - Statutory Liens

Statutory liens arising by rule of law are not consensual and are excluded from Article 9.

8

9

MODULE # 2 – Changes to UCC Article 9

Change to Definition of Public Records (UCC § 9-102(a)(68))Currently - the correct name for a registered

organization for inclusion in a financing statement is the one on the “public record.”

Revised code - will use the term “public organic record,” meaning a record that is available for public inspection.

10

Chattel PaperA record or records that evidence both a monetary

obligation and a security interest in any one of 5 things:1.both a monetary obligation and a security interest in

specific goods, 2.a security interest in specific goods and software used in

the goods, 3.a security interest in specific goods and license of

software used in the goods, 4.a lease of specific goods, 5.a lease of specific goods and license of software used in

the goods.11

Clarification to Rules Relating to “Control” of Electronic Chattel Paper (UCC § 9-105) Currently - Section provides a six-factor test for

whether a secured party has control of electronic chattel paper (ECP).

Revision - adds a general test, requiring that the system employed to evidence the transfer of ECP “reliably establish” the secured party as the person to which the chattel paper was assigned.” The six-factor test retained as a safe harbor.

12

Change to Location of Debtor Provision (UCC § 9-307) Currently - Section provides the rules for

determining a federally-organized debtor’s “location,” and thus the state in which a financing statement naming that debtor must be filed.

Revisions - Clarify that for registered entities organized under federal law (e.g. banks), the “main office” or “home office” is the organization’s “location” for purposes of filing the financing statement. 13

Continued Perfection of Security Interest Following Change of Governing Law (UCC § 9-316(h)) Currently - Section provides that perfected security

interests that attach prior to a debtor’s move to another state remain perfected for four months after the move.

Revisions - New subsection (h) Provides for continued perfection of newly-acquired

security interests that attach within four months after the debtor moves, so long as the secured party has taken steps that would have perfected the security interest in the debtor’s original state.

Perfection continues until the end of the four-month period.

14

Continued Perfection of Security Interest Following Change of Governing Law (UCC § 9-316(i)) Currently - Section provides that perfected security interests

that attach prior to a debtor’s move to another state remain perfected for four months after the move.

Revisions - New subsection (i) Provides for automatic perfection of security interests that

attach within four months after a new debtor in another state becomes bound by an existing security agreement with the original debtor (e.g. by merger) – so long as the secured party has taken steps that would have perfected the security interest against the original debtor.

15

Changes to Debtor Name Provisions (UCC § 9-503) Currently - Section 9-503 determines when a financing

statement sufficiently provides the correct name of a debtor.

Revisions - Amended § 9-503 states that for registered organizations, the name of the debtor will be sufficient if it matches the name on the public organic record most recently filed in the jurisdiction of organization.

For individual debtors, the code provides two alternative provisions. State legislatures may choose the one that best meets the needs of their constituents.

16

Alternative A, the “Only if” Option (UCC § 9-503)If the debtor has a current driver’s license or

other state identification the financing statement may use the name on the driver’s license.

If - and only if - the debtor does not have a driver’s license, the financing statement may use the debtor’s first personal name and surname.

17

Alternative B, the “Safe Harbor” Option (UCC § 9-503)The financing statement sufficiently names the

debtor by providing: (a) the debtor’s individual name as determined

by state law, (b) the debtor’s surname and first personal

name, or (c) the name on an unexpired driver’s license or

other state identification.

18

Organizational Information on a Financing Statement (UCC § 9-516) Current - § 9-516 provides that a financing

statement can be rejected if it fails to state the debtor’s (1) type of organization, (2) jurisdiction of organization, and (3) organizational identification number.

Revisions - The new amendments eliminate any requirement for this data.

19

UCC-5 Correction StatementCurrently - a debtor may file a UCC-5 Correction

Statement when it wishes to add a remark to the public record regarding a given financing statement.

Revisions – These filings renamed “Information

Statements” Secured parties allowed to file them as well.

These statements have no legal effect. 20

Changes to National UCC Forms (UCC-1 and UCC-3)• The ULC has proposed new national UCC forms that incorporate the proposed revisions to Article 9. • Copies of those new forms are available at:

http://www.iaca.org/downloads/2010Conference/STS/4_Draft_UCC_Forms_041910.pdf

21

22

MODULE # 3 – Creating a Security Interest

Value and Rights in the CollateralAn attached and enforceable security interest

requires that:(1) the secured party give value to the debtor, (2) the debtor have rights in the collateral, and (3) the debtor indicate its agreement to give a

security interest in the collateral.

23

Automatic Attachment for Security Interests in Specific Types of Collateral (§9-203(f)) A security interest automatically attaches to a supporting

obligation for the collateral and gives a secured party the right to the proceeds of the collateral.

“Supporting obligation” - A letter-of-credit right or

secondary obligation that supports the payment or performance of an account, chattel paper, a general intangible, an instrument, or investment property.

24

Attachment and New Debtors• Original debtor - a person that, as debtor,

entered into a security agreement to which a new debtor has become bound.

• New debtor - a person that becomes bound as the debtor by a security interest previously entered into by another person.

25

Future Advances

26

Debtor’s Request of a List of Collateral and a Statement of AccountSection 9-210 requires the secured party to respond to a

request by the debtor for any of three types of information:1. Accounting - a request that the secured party provide an

accounting of the unpaid obligations secured by the collateral.2.List of collateral - debtor requests that the secured party

approve or correct a list of what the debtor believes the collateral actually consists of.

3.Statement of account – a request that the secured party approve or correct a statement of what the debtor believes the aggregate amount of unpaid obligations secured by the collateral is as of a specified date.

27

Debtor Requests• Secured party only has to respond to requests

from the debtor. • Secured party only has to respond if the request

has been properly made, e.g., must reasonably identify the transaction that’s the subject of the request.

• Debtor is entitled – without charge – to one response during any six-month period. • The secured party can charge $25 for each

additional response.28

29

MODULE # 4 – Perfecting a Security Interest or Agricultural Lien

Financing Statement (§9-102(a)(39))A record or records composed of an initial

financing statement and any filed record relating to the initial financing statement.

30

Financing Statement FactoidsMust be filed in the office designated by the jurisdiction

that governs perfection of the security interest. Most are effective for 5 years from the date of filing and

can be continued for 5 year periods. A continuation statement can be filed within six

months of the expiration of the applicable period. It cannot be filed before that 6-month period or after it.

A timely filed continuation statement continues the effectiveness for another 5 years commencing on the day the financing statement would have lapsed.

31

Perfection through Control

32

33

MODULE # 5 – Priority of Security Interests

10 9 8 7 6 5 4 3 2 1

First-to-file-or-perfect ruleThe first secured party to file a financing

statement covering the collateral or to otherwise perfect will have priority over competing security interests.

34

Possessory Liens

• Lien on collateral arising by operation of law.• Possessory liens generally have priority over a

security interest in the collateral.

35

Thank you for participating today!Don’t forget to visit our website:

www.careertrack.com

36or Call (800) 556-3009