What to Watch for When You’re Filing In-house, Part I
The modern financial landscape is growing increasingly more complex due to internal corporate pressures and external regulatory changes. In terms of secured lending processes, filing Uniform Commercial Code (UCC) forms correctly and in a timely manner is critical, yet full of complexity. Furthermore, monitoring the health of your liens and continuing your liens, if warranted, is equally important. This blog series will look at some of the things that cannot be missed if one is to securely file and manage UCCs, whether you file directly through a Secretary of State or use a law firm or other partner to file.
In this post, we consider the importance of knowing – and using – the correct name of the borrower when filing a lien.
The name game part 1
The name of a borrower used on a UCC filing is one of the first steps in lien perfection. Due care isn’t always taken to ensure the correct name is used and the smallest difference in how a name is documented can cause a mountain of problems and even result in financial losses.
In many cases, UCC forms are filed against businesses. When this is the case, the organic public record is the way to determine the exact legal name of the debtor. The document that should be used is the most recent charter document where the business is registered, typically the Articles of Incorporation or Articles of Organization.
The case United States Securities and Exchange Commission v. ISC, Inc., Dist. Court, WD Wisconsin 2017, illustrates the importance of adhering to the exact legal name when filing. The secured Party, Double Bubble, Ltd., filed a UCC to secure credit it was providing to ISC, Inc. The name used on the UCC filing by the secured party was ISC, Inc . Notice anything different?
Double Bubble’s filing included a space between the “c” and the “.”
Ultimately, this case included an element related to the State of Wisconsin’s database search logic, but the bottom line was that Double Bubble lost standing because of an extra space in their filing.
Though businesses are more likely to be listed as debtors on a UCC, it is possible to have an individual debtor. The same requirements for exact legal names exist, but can be more problematic than businesses in determining the correct name.
A single incorrect letter proves costly
An often-cited case on the significance of incorrect names on a UCC form is that of Ronald Markt Nay v. Leaf Capital Funding, LLC (U.S. Bankruptcy Court for the Southern District of Indiana). MainSource Bank (MainSource) filed a financing statement against Ronald Markt Nay (debtor) on Feb. 4, 2014. The financing statement was a blanket lien, and was filed against the individual debtor name “Ronald Markt Nay.”
LEAF Capital Funding (LEAF) made two loans to the debtor to finance the purchase of two dump trucks. LEAF filed financing statements for the loans on December 10 and 21, 2015. Each of the LEAF financing statements identified the debtor’s name as “Ronald Mark Nay,” while the debtor’s actual name listed on his most-recently issued, unexpired Indiana driver’s license was “Ronald Markt Nay.” That single letter difference in the names eventually proved costly.
Nay and his wife, Sherry L. Nay, filed a Chapter 11 bankruptcy on May 13, 2016.
The State of Indiana abides by the 2010 Amendments to Article 9 of the UCC. These amendments include an important provision stating that a financing statement sufficiently provides the debtor’s name only if it provides the “full, correct” name of the individual as indicated on their driver’s license. As noted above, LEAF’s statements did not, as there was a difference in the spelling of the name between the one on the financing statement and the one on the driver’s license.
When the case was addressed in bankruptcy court, LEAF claimed that an Indiana filing office administrative rule permitted searches on variations of the debtor’s “full, correct name.” MainSource contended that alternative names are not permitted, as the statute states that the “full, correct name” of the debtor is the name as it appears on his or her Indiana driver’s license. The court agreed with MainSource and they were able to recover the debtor’s collateral before LEAF.
But a misspelled name or an extra space are not the only concerns that may affect perfection. We will discuss other possible issues in our next blog post. In the meantime, ensure that debtor’s names on UCC filings are full, correct names.
Need help? Give us a call at (800) 833-5778 to discuss any immediate questions or concerns you may have about your current lien portfolio.