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UCC Secured Transactions: Avoiding Pitfalls in Perfecting Security Interests
Protecting Collateral in Bankruptcy and Enforcement Actionspresents
Today's panel features:
Steven O. Weise, Partner, Proskauer Rose, Los Angeles
Tuesday, June 30, 2009
The conference begins at:1 pm Eastern12 pm Central
11 am Mountain10 am Pacific
The audio portion of this conference will be accessible by telephone only. Please refer to the dial in instructions emailed to registrants to access the audio portion of the conference.
A Live 90-Minute Audio Conference with Interactive Q&A
1
UCC Secured Transactions: Avoiding Pitfalls in Perfecting Security Interests
Steve [email protected]
UCC Article 9
2
Does Article 9 apply to the transaction?
Meaning of ‘security interest’ § 1‐201(b)(35)
Hidden secured transactions ‘Dirty’ leases ‘Sales’ transactions
Consider taking protective measures, e.g. filing of financing statement
3
Sales of payment rights – § 9‐109(a)(3)
Accounts Chattel paper Payment intangibles Promissory notes
4
Consignments – § 9‐109(a)(4)
Consignment creates a ‘security interest’ Consignor is ‘secured party’ Consignee is ‘debtor’
5
Agricultural liens – § 9‐102(a)(5)
Not a ‘security interest’ Lien created under non‐Article 9 law Other law governs enforceability
between the parties Perfection necessary under Article 9 to
defeat rights of third parties
6
Exclusions – § 9‐109(c)
Government debtors in some states Sales of small amounts of payment rights
8
Security agreement – § 9‐102(a)(73)
Agreement that creates or provides for a security interest
In transactions covered by Article 9, includes: Consignment agreement Sales agreement
9
Oral security agreement – § 9‐203
‘Pursuant to debtor’s security agreement’ Possession of certificated security Registration of ownership of
registered certificated security Control
Deposit accounts Electronic chattel paper Investment property Letter‐of‐credit rights
10
Authenticated security agreement
‘Grant’ of security interest – § 9‐203 Consignment or sales language ‘creates
or provides’ for ‘security interest’ in consignment and sales transactions
Authentication – § 9‐102(a)(7) Allows electronic ‘authentication’ Not subject to:
UETA, or E‐SIGN
11
Description of collateral – § 9‐108
Must ‘reasonably identify’ the collateral May not use ‘all assets’ description in
security agreement OK to describe collateral by ‘type’ or
‘category’ Description by ‘type’ not sufficient: Commercial tort claims Consumer transaction involving
consumer goods, securities entitlement, or securities account
12
Rights in the collateral or power to transfer – § 9‐203
‘Power’ to transfer Buyer with voidable title Consignee Seller of accounts, chattel paper or
instruments where buyer is not perfected
Non‐transferable property
13
Anti‐assignment provisions regarding collateral – §§ 9‐406 + 9‐408
LLCs and partnerships Is the collateral ‘investment property’,
‘general intangible’, or a ‘payment intangible’?
Who is the ‘account debtor’? IP licenses Government permits Application of rules during foreclosure
14
Give value
Meaning of ‘value’ – § 1‐204 ‘Any consideration sufficient to
support a simple contract’ Commitment to make a loan
To whom? OK if value goes to third party, e.g.
when security interest granted by guarantor and loan made to borrower
15
Supporting obligations and underlying collateral – § 9‐203
Security interest automatically created when security interest is created in: supported obligation or secured obligation
16
Proceeds – § 9‐203
Security interest in proceeds automatically attaches if security interest has attached to original collateral
Security interest may ‘detach’ after 20 days if certain requirements are not met
17
After‐acquired collateral – § 9‐204
Generally allowed Not permitted: Commercial tort claims Consumer goods, unless acquired
within ten days of secured party giving value
In security agreement should refer to ‘after‐acquired’ collateral or the like
19
Security agreement – default clause
No definition in Article 9 Typical provisions Non‐payment of secured debt Non‐ordinary course transfers of
collateral Loss of perfection or priority
20
Why perfect the security interest?
Beat other secured parties Beat lien creditors Beat trustee in bankruptcy Beat non‐ordinary course buyers, lessees,
transferees, and licensees
21
Perfection: automatic – § 9‐309
Sales: Promissory notes
Do not need possession Payment intangibles Not automatic for sales of accounts or
chattel paper
22
Perfection: financing statement – §9‐310
Available for all types of collateral, except: Money Deposit accounts Letter‐of‐credit rights Required federal or other state filings
Sometimes subject to non‐temporal priority rules
23
Completing the financing statement
Debtor name – §§ 9‐502(a)(1) + 9‐503 Individuals
Nick names Registered organizations
Which document to look at Organizations Trusts
24
Completing the financing statement
Indication of collateral – §§ 9‐502(a)(3) + 9‐504 All asset descriptions
25
Where to file the financing statement –§§ 9‐301 – 9‐307
Location of the debtor rule Registered organizations Organizations Individuals Trusts
26
Authorization to file the financing statement – § 9‐509
Express authorization Automatic authorization Authentication of security agreement
Ratification of earlier filing Retroactive effect
27
Perfection: maintaining the financing statement
5‐year rule for most financing statements – § 9‐515 6‐month window Fixture filings Manufactured homes
Amendments – § 9‐512 Change in name Change in collateral Terminations
28
Possession – § 9‐313
Applies only to tangible collateral Through agent Bailee Not effective unless bailee
authenticates record that it has possession for ‘benefit of’ secured party
Bailee may not be too ‘closely connected’ to debtor
29
Control – § 9‐314(a)
Deposit accounts – § 9‐104 Investment property – §§ 8‐106 + 9‐106 Electronic chattel paper – § 9‐105 Letter‐of‐credit rights – § 9‐107
30
Compliance with other laws – § 9‐311
Certificate of title Cars
File financing statement for dealers with respect to inventory (seller or lessor of cars)
File financing statement if car dealer not in the business of selling cars (as well as leasing, if leasing is what it does)
Airplanes FAA filing UCC still applies to non‐perfection issues Capetown Convention
Ships
31
Federal law filing? – § 9‐109(c)(1)
Copyright File in Copyright Office for registered
copyright and under UCC for unregistered copyrights
Patents File under UCC
Trademarks File under UCC
32
Supporting obligations and underlying collateral – § 9‐308
Security interest automatically perfected when security interest is perfected in supported obligation or secured obligation
33
Proceeds – § 9‐315
Perfected if security interest in original collateral was perfected
May lose perfection after 20 days if certain requirements are not met
35
Application of perfection rules to specific types of collateral
Equipment, inventory, promissory notes, chattel paper Financing statement or possession Possible superpriority for promissory
notes and chattel paper Accounts receivable Financing statement only
36
Application of perfection rules to specific types of collateral
Deposit accounts (as original collateral) Control only
Securities accounts Financing statement or control Control superpriority
Partnerships and LLC interests Financing statement only If opt in to Article 8, then also
possession or control Possible superpriority
37
Due diligence
Which names to search Where to search Which systems to search in On‐site inspections Review contracts for assignment issues
38
Post‐closing changes
Change of debtor’s name – § 9‐507(c) Change of debtor’s location – § 9‐
316(a)(2) New debtor – §§ 9‐325, 9‐326 + 9‐508 Transfer of collateral to different debtor
– § 9‐507(a) Ordinary course transferees – §§ 9‐320
+ 9‐321 Conversion statutes Article 9 revisions
39
UCC Secured Transactions: Avoiding Pitfalls in Perfecting Security Interests
Steve [email protected]
UCC Article 9