Welcome to the NCS 2018 Webinar Series

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Today’s Webinar: The Basics of The UCC Process

January 9, 2018

Welcome to the NCS 2018 Webinar Series

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Agenda

• Uniform Commercial Code and Revised Article 9

• Blanket UCC-1 Filings

• Priority in UCC Filings

• Purchase Money Security Interest

• Benefits in Chapter 7 Bankruptcies

• Inventory vs. Equipment

• Repossession

• Security Agreement

• Financing Statement


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Collateral

Property pledged as a guarantee

of payment for an obligation or

loan.

Collaterize

Receivables Personal Property Real Property


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Improve Cash

Flow

Improve Working

Capital

Reduce DSO

Proven Strategies


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The cost of write-offs

The Value of Money

Margin % Write Off Sales to Recover

30 $50,000 $166,666

25 $50,000 $200,000

15 $50,000 $333,333


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Article 1: General Provisions

Article 2: Sales

Article 2A: Leases

Article 3: Negotiable Instruments

Article 4: Bank Deposits and Collections

Article 4A: Funds Transfers

Article 5: Letters of Credit

Article 6: Bulk Transfers

Article 7: Warehouse Receipts, Bills of Lading

Article 8: Investment Securities

Article 9: Secured Transactions

The Uniform Commercial Code


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The same protections are

available under Canada’s

PPSA.

Personal Property Security Act


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The Expanding Code

• Canada

• Mexico

• Puerto Rico

• Australia

• New Zealand


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• July 1, 2001

• July 1, 2013

Article 9 Revisions


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The Best Possible Position

to Get Paid

If your customer (the debtor)

goes out of business (defaults)

before the goods or services

you provided are paid for, you

are in the best possible

position of getting back some

of the goods or some of the

money due.

Secured Transactions


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• Secured creditor status in a Chapter 7

• Right of Repossession (PMI)

• Part of the secured creditor team in a

Chapter 11

• Generally protected from preferential

payment suits

• Public record of debt in case business is

sold

Benefits of UCC Filings


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• Misconception

• Cumbersome

• Never been

burned

Why is There Not a Greater Use of UCC Filings?


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1. Blanket, or Basic

2. Purchase Money

Security Interest


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Two Characteristics:

1. The filing covers all assets 2. The priority stacks

Blanket, or Basic, UCC-1 Filing


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Those creditors who are:

• Providing financing only

• Providing services only

• Providing materials, inventory, equipment

or goods that are quickly used up or resold

by the debtor

Who Has Application for a Blanket UCC-1?


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Who Has Application for a Blanket UCC-1?


• Providing financing only

• Providing services only

• Providing materials, inventory, equipment

or goods that are quickly used up or resold

by the debtor

• Structuring notes


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Promissory Note


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Debtor =

$61,000 $20,000

$10,000

$10,000

$5,000

$10,000

Unsecured

creditors


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First in

time, first in

right

Debtor =

$61,000 $20,000

$10,000

$10,000

$5,000

$10,000

$55,000

Unsecured creditors

split what’s left over

100%

100%

100%

100%

100%


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First in

time, first in

right

Debtor =

$61,000 $20,000

$10,000

$10,000

$5,000

$10,000

$55,000

100%

100%

100%

100%

100%

100 unsecured creditors

$1000 each is owed

$60 each is actually paid


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First in

time, first in

right

Debtor =

$61,000 $20,000

$10,000

$10,000

$5,000

$10,000

$55,000

100%

100%

100%

100%

100%

100 unsecured creditors

6¢ on the dollar


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Secured Creditors

Administrative Priority Claims

Lower Level Priority Claims

Claims are paid based

on where they are

situated on the claims

priority ladder.

Pre-petition

Unsecured Creditors

Priority in UCC Filings


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1. Selling to stocking wholesalers.

2. Selling to stocking resellers.

3. Selling on a consignment basis where title passes

while inventory is still in the debtor’s possession.

4. Selling inventory or equipment.

Who Has Application for a PMSI Filing?


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It depends on what your customer does with

the goods you sell to them.

Inventory vs. Equipment


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Is your customer reselling or using your products in

their business?

INVENTORY (GOODS) EQUIPMENT

Customer resells the

goods to another entity

Customer uses the

goods in the course of

their business

Search Contract

Notify 20-day Rule

Equipment vs. Inventory


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• Resale

• Differentiating your

receivables

PMSI: The Value of Repossession


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$20,000

$10,000

$7,000

$10,000

$10,000

$10,000

Unsecured creditors

Debtor =

$61,000


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$20,000

$10,000

$7,000

$10,000

$10,000

$10,000

Unsecured creditors

Debtor =

$61,000

Your inventory

= $5,000


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$20,000

$10,000

$7,000

$10,000

$10,000

$10,000

Unsecured creditors

Debtor =

$61,000

Your inventory

= $5,000

Debtor =

$56,000


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$20,000

$10,000

$7,000

$10,000

$10,000

$10,000

Unsecured creditors

Your inventory

= $5,000

Debtor =

$56,000

First in time,

first in right 100%

100%

100%

100%


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$20,000

$10,000

$7,000

$10,000

$10,000

$10,000

Your inventory

= $5,000

Debtor =

$56,000

First in time,

first in right 100%

100%

100%

100%

Unsecured

Creditors $0

90%

50%


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The Objection

Do you really think

there is going to be

any inventory left to

repossess in a

Chapter 7?


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Come on, I ran a

credit report, there

are 15 previously

secured creditors.

What’s the value in

being 16th?

The Objection


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Debtor =

$80,000 $20,000

$10,000

$7,000

$10,000

$10,000

$10,000

Chapter 11

Unsecured

Creditors $0


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1. Security Agreement 2. Financing Statement or UCC-1

Two Required Elements


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• Creates the

secured interest

• Spells out terms

and conditions

Security Agreement


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Can be a stand-alone

document or exist in

other forms • Loan agreement

• Sales agreement

• Consignment agreement

• Promissory note

• Conditional sales contract

• Dealer agreement

• Or….

Security Agreement


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redit

pplication

ecurity

greement


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• Records the secured

interest and makes it a

public record

• In effect for five years,

at which time can be

continued for another

five-year period

• Filed in locations based

on your customer’s

form of business

Financing Statement


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All inventory / goods manufactured by or distributed by Secured Party,

whenever sold or consigned, to or for the benefit of Debtor by Secured Party,

wherever located, now owned and hereafter acquired including but not limited

to...; and all proceeds from the sale thereof; and all existing or subsequently

arising, accounts, and all accounts receivable which may from time to time

hereafter come into existence during the term of this Security Agreement.

1 • General

enough to write one

2 • Specific

enough to identify your goods

3 • Collateralized

to the extent you are owed money

Three Goals of a Collateral Description


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• UCC filings provide a way to have collateral pledged against open credit lines

• Trade creditors have the same opportunities as banks to have this collateral

pledged

• UCC filings can provide you protection in the event that your customer

defaults or files bankruptcy

• They also can provide you protection from preferential payment claims

• A position “in line” can be taken on intangible assets and priority in tangible

assets, such as inventory or equipment, can be established

• The secured interests are created through a security agreement and made a

public record via a financing statement or UCC-1

Review of Topics Covered


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Questions & Comments

Thank you for your time!

Visit us online: www.ncscredit.com

Jerry Bailey: [email protected]

Call us: 800-826-5256 ext. 177

http://www.ncscredit.com


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Documents

Welcome to the NCS 2018 Webinar Series