New 9: What To Do
By: LYNN M. GARDIN & MARY S. RANUM
June 2001
Revised Article 9 of the Uniform Commercial Code is set to take effect in Minnesota (and, so far, 35 other states and the District of Columbia) on July 1, 2001. Here are some things you will want to do with your existing secured loans:
Prior to July 1, be sure you are properly perfected under existing Article 9 and that any filings currently in effect have the debtor's correct legal name. For existing security interests that are properly perfected under existing law by the filing of a financing statement, the filing will remain effective until the normal lapse date. The new law makes it even more important, however, that your filing has the correct legal name of the debtor.
After July 1, review where the debtor is "located" and figure out where you need to file (this will take some careful work if any state that has not adopted New 9 is involved). Generally, for a debtor that is an organization registered with a state (e.g., corporations and limited liability companies), New 9 says that a debtor is located in its state of organization. If the debtor is located in a state where you have not filed, be sure proper "in lieu of" financing statements are filed after July 1 and prior to the normal lapse date of the filing under existing law.
Review the collateral intended to be covered by your security interest, and be sure the correct "categories" are used after July 1. New 9 defines new types of collateral that are covered and moves certain assets from one category to another. Make any changes to collateral categories in an amendment, but remember to file the "in lieu of" filing (if needed) first. If an "in lieu of" filing is required because of the new location rules, any amendment to the original financing statement will give rise to the need to file an "in lieu of" statement even if the lapse date is not yet near.
Remember you can use an "all assets" description in the financing statement (but not the security agreement) if you have a security interest in all assets. Do not use "all assets" in financing statements if you do not have a security interest in all of the debtor's assets. Under New 9 a secured party needs to be authorized to file the financing statement, so you will want your security agreement to grant you that authorization.
If you deal with consumers, note that New 9 contains numerous special protections for consumers.
If in doubt, seek assistance from your legal counsel.