JULY 1, 2013 AMENDMENTS TO UCC ARTICLE 9: EFFECT ON INSOLVENCY

& RESTRUCTURING ADVISORS

Webinar, June 19, 2013

Hon. William Houston Brown

Lawrence R. Ahern, III

Panelists:

William Houston BrownBankruptcy Judge, W.D. Tenn., 1987-2006 Lawrence R. Ahern, IIIAdjunct Professor of Law, Vanderbilt University 

Partners, Brown & AhernADR & Legal Consulting to Professionals

WBrown@BrownAhern.com(970) 319-2103LAhern@BrownAhern.com(615) 579-2542

INTRODUCTION

Why do you care?

Interplay of Article 9 of the UCC Perfection defeats lien creditor Trustee/DIP is hypothetical judgment creditor with lien

on personal property May "avoid" unperfected security interest

Importance to restructuring, workouts, bankruptcy Determines secured status Secured status determines leverage in Chapter 11

INTRODUCTION (Cont'd)

Article 9 & Bankruptcy (Cont'd)

Perfection constitutes "transfer" for preference purposes

Trustee/DIP may avoid perfection within preference period 90 days 1 year to or for benefit of insider

INTRODUCTION (Cont'd)

Name of debtor

Filing provides notice of security interest Indexed by name

Trustee/DIP may show wrong name is "seriously misleading" Unperfected

Article 9 strict Search in correct name

"Search logic" strict Must reveal filing

INDIVIDUAL DEBTOR'S NAME

Guidance lacking in 2001 statute Naming individuals more problematic than

entities

Court decisions Harsh outcomes Inconsistent States had started to enact "safe harbor"

legislation

INTRODUCTION (Cont'd)

New rules

Most states have adopted

Uniform effective date July 1, 2013

Will change the way restructuring advisors and other professionals will evaluate secured claims

Upcoming AIRA Journal Articles

INDIVIDUAL DEBTOR (Cont'd)

Legislative status http://csctransactionwatch.com Majority have chosen Alternative A

Two alternatives §503(a)(4) Alternative A = "Only if" Alternative B = "Safe harbor"

ALTERNATIVE A – "ONLY IF"

If debtor has current driver's license Or ID issued by licensing authority Name on license sufficient to name debtor

Only if license/ID does not exist Two more alternatives Individual name First personal name and surname

ALT. B – "SAFE HARBOR"

Three equally sufficient safe harbors Individual name First personal name and surname Name on unexpired driver's license

So, if license/ID exists Works under either alternative

Problem for searchers Must search all possibilities

OBSERVATIONS

If license/ID exists Works under either alternative

Alternative B Additional searching

Alternative A License names not always fit with UCC-1 Fields; order of names

HYPOTHETICAL # 1

Name: Brooks L. Dickerson

Individual owner of construction company

Known in community: "Louie" Dickerson

Equipment filing: "Louie" Dickerson

Peoples Bank v. Bryan Bros. Cattle Co., 504 F.3d 549 (5th Cir. 2007); § 9-506 Cmt. 2; see also UCC § 9-503 Cmt. 2.d.

HYPOTHETICAL # 2

Name: Jane Doe Smith, nee Jane Patricia Doe

Individual owner of retail business Driver's license issued after marriage Inventory filing used name on old license

Effect of name change on filing Distinguish between existing and after-acquired

collateral 4-month window to file correctly

HYPOTHETICAL # 3

Name: James McGinty, now Roger McGuinn

Alternative A state Driver's license: James McGinty Court order changed James McGinty's name to

Roger McGuinn No new license But filing in name of Roger McGuinn

§ 9-507 Cmt. 4.

HYPOTHETICAL # 3A

Name: James McGinty / Roger McGuinn (Cont'd)

Individual owner of retail business What if driver's license expires?

Name change rules (again):

Collateral acquired by debtor more than four months after change

Not covered by after-acquired property clause

HYPOTHETICAL # 3B

Name: McGinty/McGuinn (Cont'd)

Individual owner of a construction business What if McGinty/McGuinn moves to a new state? Only license is issued by former state

Location change rules:

Must re-perfect within four months after change Unperfected if not re-filed Not limited to after-acquired property clause

REGISTERED ORGANIZATION

Institutional "birth certificate”

Document filed as public record Corp., LLC, etc.

Two problems

Database/website inconsistent with public record?

Public document have internal inconsistencies?

REGISTERED ORG. (Cont'd)

Database/document inconsistency

New definition: "public organic record" = source of name

Inconsistency within public organic record

Look to text provision stating name Not caption, signature block, etc.

HYPOTHETICAL # 4

Spearing Tool Charter: "Spearing Tool Manufacturing

Company" Secretary of State website: "Spearing Tool Mfg.

Co." Sec'y of State issues Good Standing Certificate

("Spearing Tool Mfg. Co.") Filing: "Spearing Tool Mfg. Co.” In re Spearing Tool and Mfg. Co., Inc., 412 F.3d

653 (6th Cir. 2005), cert. denied, 127 S. Ct. 41 (2006).

HYPOTHETICAL # 5

C. W. Mining Company Title of "public organic record": "Articles of

Incorporation of CW Mining Company" Paragraph 1 of "public organic record": "The

name of this corporation shall be C. W. Mining Company.” (periods; spaces)

Filing: "CW Mining Company” Rushton v. Standard Industries, Inc. (In re C.W.

Mining Co.), 2009 WL 2601246, 69 UCC Rep. Serv. 2d 830 (Bankr. D. Utah Aug. 24, 2009).

Transition Rules

General effectiveness rule New rules apply to existing transactions But 5 years to get filings right

Ties to general 5-year effectiveness of UCC-1s

Filings that lapse during transition Must be re-filed in the correct name

JULY 1, 2013 AMENDMENTS TO UCC ARTICLE 9: EFFECT ON INSOLVENCY

& RESTRUCTURING ADVISORS

QUESTIONS?

Panelists:

William Houston BrownBankruptcy Judge, W.D. Tenn., 1987-2006 Lawrence R. Ahern, IIIAdjunct Professor of Law, Vanderbilt University 

Partners, Brown & AhernADR & Legal Consulting to Professionals

WBrown@BrownAhern.com(970) 319-2103LAhern@BrownAhern.com(615) 579-2542