What’s in a Name? For UCC filers

Today it’s more important than ever to make certain you have the proper debtor name on all of your UCC filings. Unfortunately, as with every complex, multi-stage human endeavor, errors happen. With a UCC debtor name error, however, that mistake may not be apparent until the debtor encounters financial difficulty and the entity issuing the loan needs to collect its collateral months, or even years later.

What’s in a Name? For UCC filers, often the difference between recovering millions or being left empty-handed.

Today it’s more important than ever to make certain you have the proper debtor name on all of your UCC filings. Unfortunately, as with every complex, multi-stage human endeavor, errors happen. With a UCC debtor name error, however, that mistake may not be apparent until the debtor encounters financial difficulty and the entity issuing the loan needs to collect its collateral months, or even years later.

In a moment, we’ll examine two prominent actual bankruptcy court cases that illustrate the business consequences when a UCC filer makes an error or fails to properly include a debtor company’s correct and legal name in its filing. But first, here’s a brief introduction on why you, as a lender, should take every due diligence precaution to ensure the debtor name you have entered is the proper one.

When a UCC filer incorrectly lists debtor’s name on a filing, it’s highly likely the party making the loan or lease could have its interests declared insecure, which means they lose their secured standing and “move to the back of the line” among creditors. Should there be a large number of secured lenders in front of them, they could receive back only a fraction of what they are owed when assets are divided, or they could lose everything they risked when making the loan. That could mean losing a piece of equipment to losing hundreds of thousands, perhaps even millions of dollars. So “What’s in a name?” is of critical importance if you’re a lender filing a UCC statement.

What’s worse, a debtor name error doesn’t have to be much of an error to cause a major, and potentially costly, problem. For example, CCF Leasing Co. (CCF) leased restaurant equipment to Idaho-based Wing Foods, Inc. As required, CCF filed a UCC-1 financing statement with the Idaho secretary of state to secure (perfect) its interests. Unfortunately, when filing the statement, CCF listed the debtor’s name as “Wing Fine Food” rather than “Wing Fine Foods, Inc.”

One year later, Wing Fine Foods files for Chapter 7 bankruptcy. When CCF went to make a claim on its assets in bankruptcy court, Wing Fine Foods successfully argued the UCC-1 filing with the incorrect name was a misrepresentation, confusing and misleading. The court ruled the name disparity voided CCF’s security interest. In short, CCF walked away with nothing. The incorrect name in the filing cost it everything it had risked when it made the loan.

Time and again, courts have ruled a business entity’s name is a valuable differentiator. And with so many businesses in operation having similar names, any confusion caused by error, no matter how slight, could prove costly, even ruinous, if not corrected in time.

In another example, New York-based jeweler Suna Bros., Inc. consigned 65 pieces of jewelry valued at $300,000 for resale to Tyringham Holdings, Inc. of Virginia. When filing its UCC in Virginia, Suna accidentally omitted the “Inc.” after Tyringham Holdings. Tyringham’s official corporate name, as recorded in Virginia records, is Tyringham Holdings, Inc. While that sounds like an innocent enough infraction, that’s not what the bankruptcy court ruled when Tyringham later filed for Chapter 11 protection.

The court considered the word “Inc.” to be a significant differentiator and that a UCC search using the debtor’s proper, legal name did not turn up Suna’s erroneous filing. The court found Suna’s UCC filing “seriously misleading” and ruled the company’s lien on Tyringham for the jewelry was not secure. As a result, Suna lost its $300,000.