Much time, energy, and thought has been spent in refining UCC provisions regarding the correct debtor name for a financing statement and the amount of latitude that should be allowed for minor errors. Article 9 was revised in 2010 in part to address these troublesome issues. With the first cases under this new law now starting to appear one wonders, did it work? What do you think? Read this commentary and find out.
The drafters of Article 9 of the Uniform Commercial Code have devoted much time, energy, and thought in refining the provisions regarding the correct debtor name for a financing statement and the amount of latitude that filing creditors should be allowed for minor errors in setting forth the debtor's name. Article 9 was revised in 2001 and then again in 2010, in part to address these troublesome issues. The 2010 Amendments (now adopted in almost all states), it was hoped, would once and for all leave no remove for debate on debtor name questions. The 2010 Amendments went into effect in most states on July 1, 2013, and the first cases decided under the new law are beginning to appear. Despite the drafters' high expectations of clarity, a recent bankruptcy decision reveals a court so uncertain of the new law's meaning that it has certified questions to a state supreme court. In re Patriot Electric & Mechanical, Inc., No. 13-15055-RAG, 2014 Bankr. LEXIS 1962 (Bankr. D. Md. May 1, 2014) (hereinafter Patriot) [an enhanced version of this opinion is available to lexis.com subscribers].
In Patriot, the creditor's predecessor, K Bank, had lent the debtor Patriot $1.5 million in February 2007. 2014 Bankr. LEXIS 1962, at *4. The loan was secured by a security interest in all of Patriot's assets, and K Bank had filed a financing statement with the Maryland Department of Assessments and Taxation (SDAT), listing the debtor under its then correct name of "Patriot Electric, Inc." In November 2010, the current creditor, M & T, purchased the loan from K Bank, and the debtor changed its name to "Patriot Electric and Mechanical, Inc." 2014 Bankr. LEXIS 1962, at *5. In September 2011, M & T filed a continuation statement under the debtor's original name. On March 22, 2013, the debtor filed a voluntary petition under Chapter 11 of the federal Bankruptcy Code. 2014 Bankr. LEXIS 1962, at *3. In the bankruptcy proceeding, Patriot, the debtor-in-possession, sought to nullify the secured party's security interest by asserting its power under the strong arm clause (11 U.S.C. § 544 (a)(1)) to set aside unperfected security interests [an annotated version of this statute is available to lexis.com subscribers] . Patriot, 2014 Bankr. LEXIS 1962, at *3-4. Patriot argued that after Patriot's name change, the creditor's security interest lost its perfection, in particular, when the creditor filed a continuation statement in the debtor's original name. Both parties stipulated to the material facts and sought summary judgment.2014 Bankr. LEXIS 1962, at *1. The bankruptcy court faced a conundrum in deciding the perfection issue: a search in the Maryland filing office under the debtor's new name did not disclose the creditor's financing statement whereas a search under the debtor's original name did. 2014 Bankr. LEXIS 1962, at *5-6. In addition, the Maryland filing office, SDAT, prompts searchers to use partial debtor names in undertaking searches. The bankruptcy court correctly noted that the sufficiency of the financing statement is a question of state law, and with the parties' agreement, it certified to the Maryland Court of Appeals questions regarding the interplay between Article 9's express language and the instructions given by SDAT to searchers. 2014 Bankr. LEXIS 1962, at *2.
Access the full version of this article with your lexis.com ID. Additional fees may be incurred.
If you do not have a lexis.com ID, you can purchase this commentary and additional Emerging Issues Commentaries from the LexisNexis Store.
Lexis.com subscribers can access the complete set of Emerging Issues Analyses for Commercial (UCC) Law and the Commercial (UCC) Area of Law page.
For more information about LexisNexis products and solutions, please connect with us through our corporate site.