Lenders typically have extensive requirements for what inventory will be deemed “eligible” and included in a borrower’s borrowing base for purposes of determining how much the lender is required to lend. One of those typical requirements is that the inventory be owned by the borrower and located at a borrower location in the United States of America, where it will be subject to the Uniform Commercial Code and amenable to an Article 9 security interest.
For a Throwback Thursday, we often go way back, to cases establishing first principles. This time, however, we travel not so far back, but still to a bygone era, the early 80’s. It was a time when the Bankruptcy Code was still new, and judges could interpret it without the weight of much practice and precedent. Often, these cases present the starting point for familiar interpretations that continued to develop in later years, but other times it’s surprising to see a new interpretive opening that, years later, is not thoroughly explored.
ARTICLE 9 AND THE LIFE OF A UCC FINANCING STATEMENT
Since the financial crisis, sales under Section 363 of the Bankruptcy Code have provided an increasingly popular way for secured creditors of distressed businesses to recover their loans. However, despite the advantages of Section 363 sales, the significant expense and time required to conduct a Bankruptcy sale has caused secured creditors to pursue less comprehensive solutions. One alternative for recouping value from a troubled loan is an Article 9 foreclosure sale under the Uniform Commercial Code (UCC).
Edgewater Growth Capital Partners LP v. H.I.G. Capital, Inc., 68 A.3d 197 (2013)
CASE SNAPSHOT
Due to inconsistent decisions in the Second Circuit and Third Circuit, there has been some uncertainty as to whether a purchaser of a bankruptcy claim is subject to defenses that a debtor would have against the original creditor. Recently, this issue was settled with respect to cases filed in the Third Circuit.
The US Court of Appeals for the Sixth Circuit has ruled that a lender’s security interest in accounts was not perfected because a reference to “proceeds” in the lender’s UCC financing statement did not expressly refer to “accounts.” The Sixth Circuit surprisingly interpreted the definition of “proceeds”1 in Article 9 of the Uniform Commercial Code to exclude “accounts”2 (despite and without reference to provisions of UCC Article 9 to the contrary).
As all creditors know, you must file a financing statement under the Uniform Commercial Code ("UCC"), called a "UCC-1," with the North Carolina Secretary of State to perfect a security interest in personal property (and with the county Register of Deeds if the property might become a real estate fixture). The UCC-1 puts the world on notice of your security interest and establishes your place in line with respect to rights in the collateral. But you must prepare and maintain
Section 4-9-513 of the Colorado Uniform Commercial Code (UCC) provides that "a secured party shall cause the secured party of record for a financing statement to file a termination statement . . . within one month after there is no obligation secured by the collateral covered by the financing statement and no commitment to make an advance . . . ." Simply stated, when a secured obligation is paid and there is no commitment to make an advance, the secured party is obligated to file a termination statement.
Summertime is arguably the best time of the year. Warm weather. Long-awaited family vacations. Extended daylight. And unique to this summer, as of July 1, 2013, in most states, we have substantial amendments (the 2010 Amendments) to the Uniform Commercial Code (UCC) to digest (maybe even under an umbrella on the beach). The 2010 Amendments are intended to clarify existing law, especially with respect to how certain types of debtors are named in financing statements. As of July 3, 2013, 44 states and the District of Columbia had enacted the 2010 Amendments.