Some regular readers of the blog have mentioned that they are feeling a bit apprehensive about the changes to Revised Article 9. In response, FCS has started a blog series to break down the major points of the amendments and help eliminate some of the anxiety UCC filers may be experiencing.
This week’s topic is UCC Section 9-503(a)(1) which involves how to properly list a registered business as a debtor.
UCC Section 9-503(a) (1): What’s This About?
According to the Uniform Commercial Code, a UCC Financing Statement is only effective if it properly identifies the exact debtor name correctly. A UCC Financing Statement that fails to properly identify the debtor will not perfect a security interest or offer the secured party priority status to collect should the debtor default or file for bankruptcy.
Section 9-503(a)(1) of the Uniform Commercial Code states that a UCC Financing Statement properly identifies a business debtor, “only if the financing statement provides the name of the debtor indicated on the public record [emphasis added] of the debtor’s jurisdiction of organization which shows the debtor to have been organized.”
What Happens Under the Current Version of Revised Article 9?
The problem with 9-503(a)(1) as currently written is that the phrase on the public record is vague and open to interpretation. What exactly constitutes a public record for identifying a business debtor on a Financing Statement? The prevailing opinion among UCC experts is that public record means a business’s organizing paperwork. However, some UCC filers argue that a good standing certificate is a viable public record, while others hold that a corporate look-up feature from a state’s website ought to be sufficient for determining the name of a business debtor.
Owing to this ambiguity, many secured parties end up in court defending their position against a competing claim. The decisions in these cases have been inconsistent and do not provide a clear precedent for secured parties to follow when naming their business debtors.
What Change is Proposed for 2013?
The proposed amendments seek to rectify the issue in a three-part fix. First, the text of UCC Section 9-503(a)(1) will be amended to state that a UCC Financing Statement properly identifies a business debtor, “only if the financing statement provides the name that is stated to be the registered organization’s name on the public organic record most recently filed with or issued or enacted by the registered organization’s jurisdiction of organization which purports to state, amend, or restate the registered organization’s name.”
Further, in Section 9-102(67) the term public organic record is defined as a record that is available for public inspection and is “a record consisting of the record initially filed with or issued by a State or the United States to form or organize an organization and any record filed with or issued by the State or United States which amends or restates the original record.”
Lastly, an official comment to 9-102 is proposed which will specifically note that a good standing certificate or state’s publically searchable corporate index does not constitute a public organic record.
The amendments will provide secured parties with a definitive answer on how to name business debtors to perfect a security interest. In short, The Code will instruct filers to pull a business debtor’s name from their organizing paperwork (Articles of Incorporation, Articles of Organization, etc.), taking into account any amending documents that affect the initial record.
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!