This is the first installment in a series of columns
which will discuss the changes to Article 9 that are scheduled to go into effect
on July 1 of this year.
At the beginning of the year Rick Schadt wrote to ask if
I would write an update column on Revised Article Nine of the UCC in
anticipation of the changes taking place in July. Although I’m sure he has
thought I had forgotten or was ignoring his request, the truth is I was waiting
to see how the jurisdictions were going to implement the changes.
There is insufficient space to cover this subject in one
column so I will address this subject over the next few columns.
The revised Act is to become effective in all U.S.
jurisdictions on July 1, 2001. With less than six weeks to go, it appears
unlikely that all states will be in compliance on that date. Presently only 30
states have adopted the revised Article 9. During the past month I have
personally spoken to several staffers in the filing offices who have adopted the
changes and have discovered that they have not been given any information or
trained on the revised Article 9. Many of these staffers were unaware that the
revisions were even posted on their states’ website.
The revised Act does not address any of the conflicts
that may occur if both the old and new Article 9 is in effect after July 1. The
only mention of this possibility is found in Section 9-701, where it is noted
that “horrendous complications may arise” if any state has failed to adopt
the revised Act.
Perfecting a Security Interest in Inventory
An example of “horrendous complication” can be found
in perfecting a security interest in inventory. Under the present Act the proper
place to file a security interest in the inventory of a corporation is where the
inventory is located. After July 1, and under the revised Act, the place to file
is the state in which the corporation is incorporated. If the state where the
inventory is located and the state where the corporation is incorporated
administer conflicting versions of the Act than it may require litigation in
order to determine if in fact the creditor had a perfected security interest.
In upcoming columns we will discuss the formation and
filing of security agreements and financing statements; signatures; where to
file and type of liens covered under Article 9.
The information provided in this column is NOT LEGAL
ADVICE and should not be taken as such. Legal advice should be obtained from a
practicing attorney in good standing with the state bar association and
preferably board certified in creditor law or a related practice.
I wish you well.