Top Tips for Secured Parties Facing Possible Debtor Name Change
As all secured creditors know, maintaining perfection of their security interests under UCC Article 9 is essential to ensuring priority over other claimants. Unfortunately, there is a common event that can quickly eliminate the perfection of a security interest: a debtor name change. Article 9-507(c) of the UCC provides the secured party with a four month window to amend a UCC filing if the debtor’s name changes:
§ 9-507. EFFECT OF CERTAIN EVENTS ON EFFECTIVENESS OF FINANCING STATEMENT.
(c) [Change in debtor’s name.]
If the name that a filed financing statement provides for a debtor becomes insufficient as the name of the debtor under Section 9-503(a) so that the financing statement becomes seriously misleading under Section 9-506:
1. the financing statement is effective to perfect a security interest in collateral acquired by the debtor before, or within four months after, the filed financing statement becomes seriously misleading; and
2. the financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the filed financing statement becomes seriously misleading, unless an amendment to the financing statement which renders the financing statement not seriously misleading is filed within four months after the financing statement became seriously misleading.
We’ve previously discussed the importance of monitoring your customers for changes in their name as well as for changes with their status with the Secretary of State. Today we have some tips for you!
Tips for Secured Parties Facing Possible Debtor Name Changes
The following tips are courtesy of Ms. Mary Cowan, NCS President and Professor Margit Livingston, DePaul University College of Law, and were originally featured in Debtor Name Changes Under Article 9: The Importance of Keeping Financing Statements Current and Accurate.
- Tip #1: Incentivize
Incentivize your debtor to keep you informed. In the security agreement, the debtor should agree to inform you of any planned name changes and/or relocations [specify number of days] in advance. Failure to do so should constitute default, allowing the security party to call in the debt.
- Tip #2: Examine Payments
Examine the payments made by the debtor. If the debtor has been sending payment checks that reflect a certain name or address and that information changes, you should immediately contact the debtor for clarification.
- Tip #3: Monitor Corporate Status
Every three months check the state corporate registry where your debtor is listed. A change of name or status will be indicated on the registry.
- Tip #4: Stop Credit
Do not advance additional funds to the debtor beyond the original credit limit amount without verifying the debtor’s current name, address and business form.
It’s a Challenge
We recognize that keeping track of debtor name changes can be challenging, but it is worth the effort: loss of a perfected status is a prospect that no secured party wants to face!