2010 Amendments to U.C.C. Article 9: Changes in the Debtor's Location

2010 Amendments to U.C.C. Article 9: Changes in the Debtor's Location


Generally, the law of the debtor's location governs perfection issues under Article 9 of the Uniform Commercial Code. In other words, the debtor's location controls the place of filing of financing statements giving notice of Article 9 security interests. U.C.C. § 9-301 (1) (Official Version 2009). The debtor's location for Article 9 purposes depends upon the type of debtor involved-e.g., an individual, a registered organization, a non-registered organization, and so forth. An individual is said to be located in the state of his/her principal residence. U.C.C. § 9-307 (b)(1). A registered organization, such as a corporation or limited liability company, is located in the state under whose laws the organization is organized-for example, a corporation is located in its state of incorporation. U.C.C. § 9-307 (e). A non-registered organization, such as a general partnership, is located in the state where it has its place of business, if it has only one, or in the state where it has its chief executive office, if it has more than one place of business. U.C.C. § 9-307 (b)(2), (3).

Thus, in most cases, the secured party seeking to perfect its security interest in all or part of the debtor's personal property assets should be able to readily identify the state in which to file its initial financing statement. If the debtor changes its location from State A to State B, however, the secured party must be prepared to refile in the new jurisdiction. The current version of Article 9 gives secured creditors in most cases a four-month grace period in which to refile in State B without any loss of perfection. U.C.C. § 9-316 (a)(2).

In 2010, the U.C.C. drafters promulgated proposed amendments to Article 9 designed to address some of the worrisome issues created by the 2001 version of the statute. Although these amendments (which are to become effective on January 13, 2013) have not yet received full approval, it is likely that they will be passed in final form in Fall 2010 by the National Conference of Commissioners on Uniform State Law and the American Law Institute. One of the problematic issues addressed by the proposed amendments concerns the continuation of perfection of security interests in property acquired after the debtor changes its location. The Official Comments to the current version of U.C.C. § 9-316 suggest that in some cases the secured party whose debtor has moved would have no grace period at all with respect of after-acquired collateral and would need to refile immediately in State B to maintain perfection. U.C.C. § 9-316, cmt. 2, example 5. The 2010 proposed amendments attempt to clarify the existing law by providing a uniform four-month grace period for refiling after a debtor changes its location and thereafter acquires new collateral subject to the secured party's security interest.

The proposed amendments add two new subsections to U.C.C. § 9-316 that deal with after-acquired property. Under new subsection (h), the secured party has four months to refile in the debtor's new jurisdiction to maintain perfection in collateral "to which a security interest attaches within four months after the debtor changes its location to another jurisdiction." U.C.C. § 9-316 (h) (Draft 2010). For example, if the debtor was a general partnership with multiple places of business and a chief executive office in Texas, it would be located in Texas for purposes of filing. Assume the Bank has a security interest in all of the debtor's inventory, current and after-acquired, perfected by filing in Texas. Suppose that on June 1, 2014, the debtor moves its chief executive office to Nebraska and, at that time, has 10,000 pieces of inventory. Under current section 9-316 (a)(2), the Texas filing would be effective to perfect the Bank's security interest in those 10,000 pieces of inventory through September 30, 2014. If the Bank did not refile in Nebraska by that date, its security interest would become unperfected. U.C.C. § 9-316 (b). Suppose that the debtor acquires 2,000 new pieces of inventory between June 1 and September 30, 2014 after it has relocated to Nebraska. Under current Article 9, it is arguably ambiguous as to whether the Bank's Texas filing is effective to perfect its security interest in the new inventory for any period at all once the debtor has moved to Nebraska. The new draft amendments make it clear that the Bank's security interest in the 2,000 new pieces of inventory would remain perfected under the Bank's Texas filing for four months after the debtor's change of location. In other words, the Bank has four months after the debtor's move to refile in Nebraska to maintain its perfection in both current and after-acquired inventory.

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  • 06-14-2011

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