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Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
Article 9 basics
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Article 9 basics

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The presentation provides an overview of how a secured party (i) acquires a security interest in collateral, (ii) perfects that security interest, and (iii) determines priority of their security …

The presentation provides an overview of how a secured party (i) acquires a security interest in collateral, (ii) perfects that security interest, and (iii) determines priority of their security interest. Also reviewed and explained are recent changes to Article 9 regarding updates to filing procedures, search methods and lender due diligence, scheduled to take effect in July 2013.

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  • 1. Article 9: A Primer on Attachment, Perfection, and Priority October 4, 2012 Presented by John H. Strock, Esq.Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 2. IntroductionSecured transactions are a part of ourprofessional and personal daily lives. Thisprogram will provide the basics to help youunderstand how secured transactions arecreated and made enforceable.Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 3. Roadmap 1. Article 9 overview 2. What is collateral? 3. How does a security interest attach? 4. How is a security interest perfected? 5. Important changes in 2013Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 4. The UCCThe Uniform Commercial Code is thecodification of Karl Llewellyn’s legalphilosophyThe Code is intended to establishpredictable rules that will yield apredictable outcomeParties can contract around the Code ifthey chooseArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 5. The UCC The UCC is comprised of 11 articles that address different types of commercial transactions Most important for today are: - Article 1 - Article 9Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 6. The UCC Article 1 – General Provisions - Sets forth general provisions, definitions, and rules that apply to entire UCC - Most important section is 1-201, the general definitions Article 9 – Secured Transactions - Governs how a security interest is created in personal property to secure a debtArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 7. Article 9 – Key Parties Obligor – Party who receives loan/credit (9-102(a)(59)) Debtor – Party who has ownership interest in collateral (9-102(a)(28)) Creditor – Party giving loan/credit (1-201(b)(13)) Secured Party – Party in whose favor a security interest is created, whether or not obligation to be secured is outstanding (9-102(a)(72))Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 8. What is the Collateral? First, classify collateral to determine how to describe it in security agreement and how to perfect the security interestArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 9. Collateral Classification1. Identify collateral and describe as precisely as possible2. Determine how the collateral is categorized by Article 9 for filing purposesArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 10. Collateral Classification – Which Law Controls? Is collateral real estate? - If yes, local law governs Check UCC 9-109 for the scope of an Article 9 secured transaction If transaction falls within scope of 9-109, then Article 9 controlsArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 11. Quick Guide to Collateral Classification1. Is it sui generis (unique)? If yes, describe as accurately as possible2. If no, is the collateral a good or a right? See 9-102(a)(44) for definition of “goods” If 9-102(a)(44) does not provide classification for goods, “equipment” is catch all classification for goods (9- 102(a)(33))Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 12. Quick Guide to Collateral Classification3. If collateral is a right, is it a right to: Goods Payment, or Something else?Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 13. Quick Guide to Collateral Classification4. If collateral is a right to goods, it is either: a. Document of title, or b. General Intangible (catch all)Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 14. Quick Guide to Collateral Classification5. If collateral is a right to payment it is: a. Chattel Paper (9-102(a)(11)); b. An Instrument (9-102(a)(47)); c. An Account (9-102(a)(2)); or d. A General Intangible (9-102(a)(42)) General Intangible is catch all collateral classificationArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 15. A Security Interest Created A security interest is an interest in personal property or fixtures which secures payment of an obligation . . . (1-201(35)) Must have an agreement between obligor/debtor and creditor/secured party that identifies the collateralArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 16. Attachment Attachment is when a security interest becomes enforceable between Obligor/Debtor and Creditor/Secured Party (9-203) Knowledge only between these parties needed for attachment – no third party notice requiredArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 17. Attachment1. Agreement to create security reached between parties2. “Value” must be given (1-204)3. Debtor has rights in the collateralArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 18. Perfection Puts third parties on notice that security interest attached to collateral Perfection of security interest is only relevant if there is more than one creditor - Remember – a trustee in bankruptcy is a third partyArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 19. Automatic Perfection Perfection only occurs when a security interest attaches to collateral and a secured party takes the steps necessary to perfect/protect its interest (9-308(a)) Automatic Perfection (9-309) - Purchase Money Security Interest in consumer goods is most common automatic perfectionArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 20. Where to File? If no automatic perfection, secured party must then look to 9-310(a) and default is to file a UCC-1 financing statement Check 9-310(b) for exceptions to filing requirementsArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 21. Common Filing Exceptions 9-311 – Collateral required filing under separate federal or state notice system (e.g. automobiles and airplanes)Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 22. Common Filing Exceptions 9-312(a) – Permissive filing to perfect interest in chattel paper, negotiable documents, instruments, or investment property 9-312(b) – Control or possession of certain collateral requiredArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 23. Common Filing Exceptions 9-312(c) – Controls perfection of goods covered by negotiable document 9-312(d) – Controls perfection of goods when covered by non-negotiable documentArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 24. Common Filing Exceptions 9-313 – When possession or delivery to secured party perfects without filing - Must be tangible collateral 9-314 – Perfection by control - Investment property is most commonArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 25. Perfection – Choice of Law Need to know which state governs: - Perfection - Effects of perfection/non-perfection - Priority Sections 9-301 through 9-307 show us how to select to correct jurisdictionArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 26. Perfection – Choice of Law 9-301 is catch all, but look to 9-302 through 9-306 first to determine choice of law for specific collateral - 9-302 – Agricultural Liens - 9-303 – Certificate of Title - 9-304 – Deposit Accounts - 9-305 – Investment Property - 9-306 – Letter of Credit RightsArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 27. Choice of Law – General Rule 9-301 – Default rules for choice of law - 9-301(1) – Debtor’s location controls perfection (default rule) - 9-301(2) – If creditor has possession of collateral then location of collateral controls perfection, must be tangible or semi-tangible collateral - 9-301(3) – Limited to fixtures, timber to be cut, location of collateral governs (real estate filing)Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 28. Debtor’s Location 9-307 – Debtor’s location General rules for organizations (9- 307(b)(2)) - Registered organization – state of organization - Unregistered organization (general partnership) – place of business or chief executive officeArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 29. Debtor’s Name Most important information on financing statement is getting the Debtor’s name right! If the name is not correct, it could be seriously misleading and subordinate security interest (9-506)Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 30. Priority “Except as otherwise provided in [the UCC], a security agreement is effective according to its terms between the parties, against purchasers, and against creditors” 9-201(a)Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 31. Priority General rule is first to perfect is first in line (9-317(a)(1) and 9-322(a)(1))Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 32. Priority Buyer in ordinary course take free of security interest, but security interest attaches to proceeds (See, e.g., 9-320(a) and 9-315(a)) Proceeds must be segregated, or swept into an account subject to a security interestArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 33. Priority Purchase Money Security Interest (“PMSI”) PMSI lender gets automatic first priority lien in consumer goods PMSI lender gets first priority lien in goods commercial borrower if perfected within 20 daysArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 34. 2013 Amendments Most important change is to Debtor name provisions (9-503) - For registered organizations – look to formation documentsArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 35. 2013 Amendments - Debtor name chance provisions – con’t - For individuals states have two choices “Only if” – Use name on state issued ID, if and only if no ID, may use debtor’s first personal name and surname “Safe Harbor” – financing statement is sufficiently names debtor by providing: – Debtor’s individual name determined by state law; – Debtor’s surname and first personal name; or – Name on unexpired state issued IDArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 36. 2013 Amendments Continued Perfection after Change of Law (9-316) - Current code provides secured party four months to refile in new jurisdiction to preserve priorityArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 37. 2013 Amendments 9-316 Changes con’t - New 9-316(h) provides for continued perfection of newly acquired security interests that attach within four months of move - New 9-316(i) provides for automatic perfection within four months after new debtor in new state becomes bound by existing security agreement (e.g. merger)Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 38. 2013 Amendments Changes to Information on Financing Statement (9-516) Financing statement can be rejected if it fails to state: - Type of organization; - Jurisdiction of organization; and - Organizations identification numberArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 39. 2013 Amendments Change of definition of “public records” to “public organic records” (9-102(a)(68)) Means records available for public inspectionArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 40. 2013 Amendments “Control” of electronic chattel paper is amended to evidence that “reliably establish the secured party as the person to which chattel paper was assigned” (9- 105) - Old six factor test is now safe harborArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 41. 2013 Amendments Debtors location for entities organized under federal law (e.g. banks) is location of “home office” or “main office”Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 42. 2013 Amendments UCC-5 “Correction Statement” now “Information Statement” - Under amendments, debtor or secured party may file an Information Statement to clarify previous filing - No legal effectArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 43. 2013 Amendments New UCC-1 and UCC-3 formsArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 44. Article 9 Questions?Article 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild
  • 45. Contact Information John H. Strock, Esq. 215.299.2922 jstrock@foxrothschild.comArticle 9: A Primer on Attachment, Perfection, and Priority© 2012 Fox Rothschild

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