Consignment UCC Filing: A Crucial Aspect of Bankruptcy Law
Consignment UCC Filings and the Sports Authority Bankruptcy A company selling on consignment takes an unnecessary risk when it forgoes filing a UCC-1...
In the spirit of “back-to-school,” today’s post is a UCC Article 9 vocabulary lesson. Break out your pencils and notebooks, let’s get started!
Under Article 9 of the Uniform Commercial Code (UCC), a Financing Statement is a statement identifying a security interest in specific collateral. The Financing Statement is filed to provide notice to other creditors of a security interest.
Agricultural Lien: Agricultural lien means an interest, other than a security interest, in farm products: (A) which secures payment or performance of an obligation for; (B) which is created by statute in favor of a person; (C) whose effectiveness does not depend on the person’s possession of the personal property.
Bailment: A “true” consignment is a Bailment (for the purpose of the sale). *To meet the requirements of Article 9 – record the UCC-1 Financing Statement (bailor/bailee) and send notification letters to the prior secured creditors.
Blanket: A security interest in all assets of the debtor. *Record the UCC-1 Financing Statement – search & notification letters are not required.
Consignment – 9-102(20): “Consignment” means a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale. If a transaction is a “sale or return” it is NOT a consignment because the buyer becomes the owner of the goods and the seller may obtain an enforceable security interest in the goods. *To meet the requirements of Article 9, a consignment is treated the same as a Purchase Money Security Interest in Inventory – record the UCC-1 Financing Statement (consignor/consignee) and send notification letters to the prior secured creditors.
Fixture Filing/Real Estate Filing – 9-102(40): “Fixture Filing” means the filing of a financing statement covering goods that are or are to become fixtures. (9-102(41)) “Fixtures” means goods that have become so related to particular real property that an interest in them arises under real property law. * To meet requirements of Article 9 – Record the UCC-1 Financing Statement with a legal description of the property in the COUNTY where mortgages are recorded (9-501(a)(1)(B)).
Lease: A true lease is automatically perfected under Article 2A. A filing is not needed. However, occasionally doubts arise concerning whether a transaction creates a relationship to which Article 9 or its filing provisions apply. For example, questions may arise whether a “lease” of equipment in fact creates a security interest. *In this case a UCC-1 Financing Statement will be recorded listing the equipment – in case the “lease” is construed to be a security interest.
Notification Filing: UCC-1 Financing Statement that is recorded to “notify” secured creditors of a business transaction regarding certain collateral. This does not create a security interest that secures an obligation. *Record the UCC-1 Financing Statement – search and notification letters are usually sent to alert prior secured creditors.
Promissory Note: A signed document containing an unconditional promise to pay specified funds to another party by a specified date.
Purchase Money Security Interest in Equipment (aka PMSI): Securing collateral that is defined as equipment (9-102(33)) – “Equipment” means goods other than inventory, farm products, or consumer goods. The “equipment” is used in the course of the debtor’s business – it is not stocked. *To achieve priority in equipment the UCC-1 Financing Statement must be recorded within 20 days of debtor receipt.
Purchase Money Security Interest in Inventory (aka PMSI): Securing collateral that is defined as inventory (9-102(48)) – “Inventory” means goods, other than farm products, which: (A) are leased by a person as lessor; (B) are held by a person for sale or lease or to be furnished under a contract of service; (C) are furnished by a person under a contract of service; or (D) consist of raw materials, work in process, or materials used or consumed in a business. *To achieve priority in the inventory the UCC-1 Financing Statement must be recorded and notification letters (authenticated) sent before shipping.
Tooling: A supplier has possession of tooling or other equipment that is owned by the buyer. UCC-1 Financing Statement is recorded to “notify” secured creditors of a business transaction regarding certain collateral. This does not create a security interest that secures an obligation. *Record the UCC-1 Financing Statement – search and notification letters are usually sent to alert prior secured creditors.
Warehousing: UCC-1 Financing Statement that is recorded to “notify” secured creditors of a business transaction regarding certain collateral. This does not create a security interest that secures an obligation. *Record the UCC-1 Financing Statement – search and notification letters are usually sent to alert prior secured creditors.
Just kidding! No pop quizzes today. However, if you have questions, please don’t hesitate to contact us!
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