As most of you are probably aware, state filing offices are in the process of reviewing and approving a set of proposed amendments to Revised Article 9 (RA9) of the Uniform Commercial Code, collectively referred to as the 2010 Revised Article 9 Amendments, and going into effect July 1, 2013. Change can be scary. So this week FCS begins a blog series where we break down the major points of the proposed amendments and try to eliminate some of the anxiety UCC filers may be feeling about the changes.

This week’s topic is UCC Section 9-316, which governs continued perfection of security interests following a change in governing law.

UCC Section 9-316: What’s This About?

UCC Section 9-316 deals with situations in which a creditor has a filed, perfected UCC and the debtor moves to a new location outside the jurisdiction of the existing UCC Financing Statement  (caused by the re-domestication of a business entity, an out-of-state move for individuals, etc.). In these cases, the move has caused a change in governing law and action is required on the part of the secured party in order to maintain perfection.

What Happens Under the Current Version of Revised Article 9?

Under the current version of Revised Article 9, when a debtor relocates, the secured party’s protection is strictly limited to collateral that existed at the time the relocation occurred. The Secured Party has a four-month grace period to file a new UCC Financing Statement in the new location in order to maintain perfection in the existing collateral.

As it is written today, RA9 provides no protection for security interests in collateral acquired after the move until a new UCC Financing Statement is filed in the new location. This could potentially put a secured party at risk for loss if a debtor changes location and quickly acquires new inventory; a secured party holding claim in the original location will have no claim to the new inventory in the new location.

What Change is Proposed for 2013?

Under the proposed new version of 9-316, security interests in collateral acquired after a debtor relocation will be perfected during the four-month grace period. Further, the security interest will remain perfected beyond the four-month grace period provided the secured party files a new UCC Financing Statement in the new location within the allotted four-month window.

Readers, we want to hear from you! What are your thoughts? How will this amendment change the way you manage, monitor and/or file your UCC’s?

Check back next week when we tackle another of the 2010 UCC Revised Article 9 Amendments!

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