Service Area: UCC Services

Comparing USA’s UCC & Canada’s PPSA

Posted on July 27, 2023 by wpengine - UCC Financing Statements

The Similarities and Differences of the U.S.’s UCC and Canada’s PPSA

The U.S.’s Article 9 of the Uniform Commercial Code (UCC) and Canada’s Personal Property Security Act (PPSA) are sets of law that govern commercial transactions between states and provinces.

The PPSA was largely modeled after the UCC.

Forms

First, let’s take a look at the specific forms used when filing a UCC or registering a PPSA. It’s interesting to note, in the U.S. the UCC3 Financing Statement is used if a filing needs to be amended, continued or terminated. Whereas in Canada, a Renewal is used to continue a filing, a Change Statement is used to amend a filing and a Discharge is used to terminate a filing.

UCC and PPSA

In order to create a security interest you must:

Have a signed Security Agreement and the security agreement must contain a granting clause and collateral description
Record (US) or Register (Canada) the Financing Statement to make the security interest public record
Notify the prior secured creditors in order to Establish Priority in Inventory

The Financing Statement does not require the debtor’s signature

UCC versus PPSA

Despite their overall similarities, there are significant differences between the UCC & the PPSA

Individuals
- Under the UCC, verify the individual’s name with an unexpired driver’s license
- Under the PPSA, include the individual’s birthdate
Establish Priority in Equipment
- Under the UCC you must record your filing within 20 days of your customer’s receipt of the equipment
- Under the PPSA you must register your filing within 15 days of your customer’s receipt of the equipment
Where to File
- A UCC: for a registered entity the UCC is filed in the state of organization and the UCC for an individual is filed in the state of residence
- A PPSA: if the entity is registered in British Columbia, Ontario, or Saskatchewan, the PPSA is registered in the province of registration, otherwise the PPSA is registered in the province(s) in which the entity is registered and where goods are located
Life of Filing
- In the US, the secured party’s filing is good for 5 years (in most states – WY filings are good for 10 years)
- In Canada, the secured party may choose a filing period from 1-25 years or “infinity”

PPSA

The PPSA allows for repossession upon default, much like the UCC, however, the PPSA provides a broader definition of default.

Default is the failure to pay or otherwise perform the obligation secured when due, or the occurrence of an event or set of circumstances that, under the terms of the security agreement, causes the security interest to become enforceable.

A secured party may take possession of and sell the collateral when the debtor is in default under the security agreement or when the collateral is at risk. The collateral is “at risk” if the secured party has reasonable grounds to believe the collateral has been or will be destroyed, damaged, endangered, disassembled, removed, concealed, sold, or otherwise disposed of contrary to the terms of the security agreement.

Remember Quebec did not adopt the PPSA. They have their own law called the Civil Code of Quebec. The most recognized difference between Quebec and PPSA law is the interpretation of the concept of chattel mortgage.

Editor’s Note: This content was originally published in August 2014. It has since been updated and revised for 2025.

The Shift from Credit Insurance to UCC Filings Explained

Posted on July 13, 2023 by wpengine - UCC Financing Statements

While Credit Insurance Companies Slash Coverage, Credit Professionals Shift Focus to UCC Filings

As the economy struggles to realign, businesses are scrambling and struggling to keep the supply chain in motion, but the financial risks are staggering. Sales teams are pushing for customers to have access to larger credit limits and credit teams are pushing back because the financial protections they once relied on have vanished. Suppliers have widely used credit insurance to protect their accounts receivable, but credit insurance companies continue to cut coverage and slash policies to maintain their own bottom lines. While insurance companies deliver crippling blows to businesses’ financial security, credit departments have been carefully reevaluating risk mitigation strategies, and it’s brought UCC filings into renewed focus.

Credit Insurance Turbulence

Credit insurance, also known as trade credit insurance or accounts receivable insurance, insures a creditor’s accounts receivable against a debtor’s nonpayment, insolvency, or bankruptcy. Credit insurance is a widely used, internationally accepted, risk resource and is commonly used in European and Asian countries.

When the economy is good, obtaining and maintaining credit insurance is reasonably uneventful. When the economy is bad, insurers start dropping marginal accounts and overall portfolios like a bad habit, leaving creditors unprotected.

The pandemic has truly taken its toll on all facets of the economy, including credit insurance. In difficult economic times, more businesses are going to fail; this means more insurance claims and more insurance payouts. I’ll let you in on the worst kept insurance secret: insurance companies are in the money-making business, not the money-losing business. So, to save the insurance company money, your policies are taking a hit. One source cited insurance coverage had been slashed by 15%, across all industries amid the pandemic, in an effort to balance their own books: “James Daly, CEO of credit insurer Euler Hermes North American, said his company has had to scale back coverage across all industries by 15%, including retail.”

15%! Can you afford the financial burden of lost coverage on your riskiest accounts? Are the high premiums you pay worth the losses you will incur because your coverage has been slashed?

UCC Filings, Your Security Interest Awaits

Article 9 of the Uniform Commercial Code (UCC) provides an opportunity for trade creditors to secure goods and/or accounts receivable by leveraging the personal property assets of their customer. Under UCC Article 9, a security interest is an interest in personal property or fixtures and secures payment or performance of an obligation. Before extending credit, many creditors require their debtors to enter into a security agreement. The debtor will pledge specific personal property as collateral to grant a security interest to the creditor. Then, in the event of debtor default, the creditor can use the collateral to recover payment. Typically, the collateral can be sold to reduce the debt. Then, any surplus proceeds belong to the debtor and, vice versa, any deficit is still an obligation of the debtor.

Included under the Article 9 umbrella are all forms of consignment and letter of credit payment rights that support the payment or performance of other collateral. Article 9 applies to leases if the parties intend that the lease provide security, as well as sales of account and chattel paper, including pledge, chattel mortgage, conditional sales, trust receipts, and field warehousing.

A Financing Statement is effective for 5 years (10 years in Wyoming), and if a Continuation is not filed timely, the Financing Statement will lapse, and the Security Interest will be extinguished. Once the debtor fulfills the obligation, a Termination should be filed.

Why UCC Filings?

Now, more than ever, you need to protect your receivables and it’s become too expensive and risky to pursue that protection solely through credit insurance. Yes, credit insurance may still be the best option for securing export (international) transactions, but domestically (plus Mexico, Canada, Australia & New Zealand) consider UCC filings or at least supplement credit insurance with UCC filings.

The Costs

The cost of filing a UCC is nominal compared to the premiums and deductibles of credit insurance. Credit insurance premiums may range between 0.2% – 0.8% of your company’s estimated annual sales. If your company sells approximately $10 million a year, the annual premium to cover the entire AR could be $20,000 – $80,000. UCC filings cost approximately $200 per filing and filings are in place for 5 years. With UCCs, you don’t have to deal with annual premiums, deductibles, etc. UCCs are a low-cost solution, ensuring you aren’t throwing good money away.

Pick & Choose

With UCC filings, you choose the accounts to secure, you set the risk threshold, you are in control. Credit insurance companies are in the business of making money – they aren’t charity organizations. You will be required to insure good accounts to justify insurance on the riskier accounts. This way the insurance company collects premiums on the accounts that are likely to remain solvent, to make up for the money they will pay out on the accounts likely to default.

UCCs Don’t Judge

Unlike credit insurance, UCC filings aren’t judgmental. A UCC isn’t going to cease simply because your customer’s risk profile changes. The state of Delaware isn’t going to contact you and say “Listen, we see your customer’s debt has grown, so we’re going to have to unperfect your UCC.” UCC filings will secure your receivables if you have properly perfected the security interest, regardless of your customer’s creditworthiness or the economic climate.

The Value of Public Record

Let’s not forget the immense value of the public record. Recording your Financing Statement creates a public record; it is a public acknowledgement of the financial agreement. This can be invaluable in a volatile economy. As an example, if you have filed a UCC and your customer decides to sell its business without telling you, that UCC is out there in the public record and can halt the sale, helping to ensure you are paid. Credit insurance doesn’t do that.

More Sales

As you know, the business world is aggressively competitive. UCC filing is more than reducing risk; it’s about the opportunity to expand your market, by providing you with the security needed to sell to marginal accounts and by providing the added security needed to increase existing clients’ credit lines. UCC filings create a competitive advantage.

Credit Insurance and UCC Filings

Credit insurance certainly has its place in the global economy. After all, it’s insurance, powered by actuaries who carefully evaluate risk, which alleviates the burden on your credit department to analyze and monitor accounts. But, for those supplying domestically, UCC filings offer the security needed to extend credit at a fraction of the cost. As insurance companies cut your portfolio coverage, perhaps you should consider supplementing coverage with UCC filings. Pay for and use the credit insurance for the amount the insurance company is willing to insure, then file a UCC to provide security on the outstanding balance. You don’t have to pick one or the other – it’s not credit insurance OR UCCs, it’s credit insurance AND UCCs.

Editor’s Note: This content was originally published 2020. It has since been updated and revised for 2023

Selling on Consignment and UCC Filings

Posted on July 10, 2023 by wpengine - UCC Financing Statements

UCC Filings: What is Consignment?

We have previously discussed whether you should secure your receivables, under Article 9 of the UCC, via a Blanket Filing or a PMSI Filing and now we would like to discuss consignment filings. First, let’s review consignment.

What is Consignment?

Consignment, according to UCC Article § 9-102 means “…a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale.”

Who is the Consignor?

A person that delivers goods to a consignee in a consignment (i.e. the owner of the goods being delivered)

Who is the Consignee?

A merchant to which goods are delivered in a consignment (i.e. the recipient of the goods being delivered)

“Sale or Return” versus “True Consignment”

There are two recognized types of consignment:

“Sale or Return” where goods are delivered to the Consignee primarily for retail purposes. In this type of Consignment, title passes to Consignee upon delivery, but Consignee remains contractually obligated to return any unused goods.

“True Consignment” where the goods are delivered to be primarily used by the Consignee, but Consignor retains title to the goods. Consignee may either be pulling goods from stock on a need be basis, or might be testing out goods on a trial basis to determine the necessity of the goods.

How Does a True Consignment Work?

The consignor/owner retains title to the delivered goods, while the consignee/recipient holds and attempts to sell the goods. If and when those goods are sold, the owner’s security attaches to the proceeds of the sale. If the consignee is unable to sell the goods, they can simply return the goods to the owner.

Example of Consignment

The Goods: Mulch & Fertilizer
Owner of Goods: The Tractor Folks
Recipient of Goods: The Garden Supply Guys

In this case, The Tractor Folks have supplied The Garden Supply Guys with mulch and fertilizer. The Tractor Folks own that mulch and fertilizer until The Garden Supply Guys sell the mulch and fertilizer, as needed, to its customers.

If The Garden Supply Guys are unable to sell the mulch and fertilizer, they can return it to The Tractor Folks without any further obligation. (Remember, this is a simple example, and individual agreements may contain different stipulations.)

File UCCs to Protect Your Interest in Consignment

Are you required to file a UCC on a consignment transaction? No. However, we’ve now seen prominent bankruptcy cases (e.g., Sports Authority) where creditors are finding themselves unsecured, receiving pennies on the dollar.

A simple consignment agreement is often viewed by the courts as a “secret lien” and may not be enough to protect you if your customer (aka “the consignee”) defaults or files for bankruptcy protection, as there is no legal/recorded document identifying your title to the goods provided.

If your customer files for bankruptcy protection, the inventory they have on hand is gathered up and sold to pay creditors (secured creditors first and then the unsecured creditors). Without the UCC filing identifying you as a secured creditor and specifically identifying your goods, the inventory you supplied automatically becomes property of the estate.

Need assistance with filing a UCC on your consignment transactions? Reach out and let us help.

(Originally published April, 2015)

Top 5 Rookie Mistakes with Your UCC Security Agreement

Posted on June 28, 2023 by wpengine - UCC Financing Statements

Don’t Make These Top 5 Rookie Mistakes with Your UCC Security Agreement

The accuracy of your Security Agreement can make or break your properly perfected security interest. Compliance with Article 9 of the Uniform Commercial Code must be precise. Don’t fall victim to these rookie Security Agreement mistakes.

Note, today’s post focuses on the Security Agreement, but typically the information within the Security Agreement is the information that appears on the Financing Statement – at least it should be. It’s imperative for both the Security Agreement and the Financing Statement to be compliant.

Rookie Mistake #1: Getting the Debtor’s Name Wrong

I’m going to spend a bit more time on this mistake because it is, without question, the number one mistake made by secured parties: incorrectly identifying the debtor. UCC Article 9-503 specifically states if the debtor is a registered organization, the debtor’s name must be identified as it appears on the public organic record.

“…[i]f the debtor is a registered organization… the financing statement provides the name that is stated to be the registered organization’s name on the public organic record of most recently filed with or issued or enacted by the registered organization’s jurisdiction of organization…”

This means, list your customer’s name EXACTLY as it appears on the public organic record. If you pull Articles of Incorporation, and your customer’s name ends in “Incorporated” instead of “Inc.” then spell out Incorporated. Technically, Inc. is a noise word, but in one current case, the security interest was unperfected because of errors in the noise word. Be wary of spaces, punctuation and noise words – these seemingly small nuances are causing big problems for secured parties.

If the debtor is an individual, creditors must first look to the state’s legislation to determine whether to follow “Alternative A” or “Alternative B.” Most states enacted Alternative A, which states the debtor’s name should be listed exactly as it appears on the unexpired driver’s license.

Alternative A: if the debtor holds an unexpired driver’s license, the Financing Statement must list the debtor’s name as it appears on the unexpired driver’s license. (If the debtor does not have a driver’s license, the Financing Statement should list the “individual name” of the debtor or the debtor’s surname and first personal name.)

Alternative B: the debtor’s driver’s license name, the debtor’s actual name or the debtor’s surname and first personal name may be used on the Financing Statement.

Most recently we have reviewed several cases in which a seemingly tiny mistake has left a creditor’s security interest unperfected. Don’t get caught in the complacency trap!

Popular question “What should I do if my customer’s name changes?” Article 9 – 507(c) provides a 4-month window to amend a filing for a debtor name change that may be considered “seriously misleading.” If the change in your customer’s name makes the filed Financing Statement “seriously misleading,” UCC Section 9-507(c) states the Financing Statement will only be effective for collateral acquired prior to the name change or within four months following the change.

As a best practice, we recommend amending your UCC filing if your customer’s name changes. There may be situations where an amendment is not “required,” but it’s a risk to not amend. If you are unsure whether you want to amend your filing, I would recommend you determine whether the name change renders your filing as seriously misleading.

Rookie Mistake #2: Failing to Include the Granting Clause

Security interests under Article 9 are consensual. This means your customer must agree to grant you rights to the collateral. If your Security Agreement does not include a granting clause, it isn’t a Security Agreement. The granting clause does not need to be fancy, embellished with extraneous words or phrases.

Here’s an example of a granting clause “In consideration for the extension of credit, Debtor hereby grants a security interest in and assigns to the Secured Party the Collateral described in paragraph II below to secure payment and performance of all debts, liabilities and obligations of Debtor of any kind whenever and however incurred to Secured Party.”

Rookie Mistake #3: Not Clearly Identifying Collateral

Crafting a clear collateral description that isn’t too specific or too vague can be challenging. Article 9 clearly states a “supergeneric” description is insufficient. In other words, to simply identify the collateral as “all the debtor’s assets” or “all the debtor’s personal property” is unreasonable. OK, so what is reasonable? Article 9-108(b) provides the following “examples of reasonable identification”

Except as otherwise provided in subsection (d), a description of collateral reasonably identifies the collateral if it identifies the collateral by:

(1) specific listing;

(2) category;

(3) except as otherwise provided in subsection (e), a type of collateral defined in [the Uniform Commercial Code];

(4) quantity;

(5) computational or allocational formula or procedure; or

(6) except as otherwise provided in subsection (c), any other method, if the identity of the collateral is objectively determinable.

You can review some of our posts on collateral here.

Rookie Mistake #4: Missing Dates & Authorized Signatures

I list these two together because generally, when we sign documents (any documents), we sign and date. The same should apply for the Security Agreement: sign and date. Like peanut butter & jelly: sign and date. Have I repeated enough? Sign and date.

It’s vital the document be signed by a person authorized to grant the security interest. Make sure the individual signing the document has been authorized by the company to sign.

Rookie Mistake #5: Neglecting to Reference Governing Law

This is easy to overlook, especially when it can amount to a brief sentence buried within the pages of a document.

“This security agreement will be governed by the laws of _________ (state).”

Mistakes Eliminate Security

Mistakes happen, and they come at a cost. Article 9 leaves virtually no room for error and one slight misstep can leave you with an unperfected security interest and sitting in a sea of unsecured creditors. Carefully draft, review & re-review your documents to ensure you avoid these rookie mistakes.

*Editor’s Note: This content was originally published in November 2018. It has since been updated and revised for statute changes effective 2023.

Bankruptcy Proof of Claim: Don’t Forget!

Posted on June 15, 2023 by wpengine - Credit Risk Management, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit, UCC Financing Statements

Bankruptcies Are on the Rise; Remember Your Bankruptcy Proof of Claim

It’s “officially” unofficial, we may be heading into another recession. Think back to 2008 and you’re sure to remember the painful increase in debtor defaults and bankruptcies; virtually no creditor’s AR escaped unscathed. With bankruptcies on the rise, it is increasingly likely you will need to complete a bankruptcy proof of claim either as a secured or unsecured creditor.

The Secured Creditor Ideal

In the event of a debtor’s bankruptcy, you will ideally be a secured creditor who properly filed a mechanic’s lien, bond claim or UCC. Secured transactions are proven to put creditors in the best possible position to get paid, though there are additional securities available such as a Corporate Guarantee or Personal Guarantee.

What is a Bankruptcy Proof of Claim?

A proof of claim is a document filed within the bankruptcy court that alerts the court, debtor, Trustee, and other interested parties that a creditor wishes to register a claim against the assets of the bankruptcy estate. This document is important because it provides proof that the claim is valid and owed, and notifies the Trustee of the creditor’s claim as well as to what class the claim should be associated.

What Information is Included in the Bankruptcy Proof of Claim?

The U.S. Bankruptcy Court’s official form includes fields for various pieces of information such as creditor name and location, the amount of the claim, the basis of the claim, whether the claim is secured, if the claim is based on a lease, and whether the claim is subject to right of setoff.

A Class to Associate the Claim?

Yes, in bankruptcy proceedings, creditors are put into various classes. The bankruptcy code is specific, detailed and, well…it’s long – but here is the basic payout priority:

Payout Priority in Chapter 11 Bankruptcy

Secured Creditors (i.e. creditors who have a perfected security interest)
Administrative Expenses (i.e. costs associated with filing & processing the bankruptcy)
Unsecured Creditors (i.e. creditors without a security interest)

Here’s an example of the class breakdown in the recent bankruptcy plan for Fred’s, Inc.

And here’s the Summary of Estimated Recoveries for Claims and Interests:

I’ll take this opportunity to point out that secured creditors often fair far better than unsecured creditors. In this bankruptcy, it is estimated that secured creditors will recover 100% of their claims, while unsecured creditors will receive between 4%-8.8% of their claims.

A Bar Date? Like a Date at a Bar?

Bar date and date at a bar are most definitely two different things, though it’s possible they have the same level of fun & excitement. Depending on the bankruptcy, a Bar Date may be set by the court. This date is a deadline by which all creditors must file their proof of claims within the bankruptcy court. It is critical that the proof of claim is filed correctly and timely, whether it’s secured or unsecured, to ensure creditors’ rights are preserved and to maximize any possible distribution.

What You Should Do

When a creditor receives notice that their debtor has filed bankruptcy, the notice should be reviewed to determine if a proof of claim needs to be filed.

Be on Time: Too often, creditors miss the bar date to file.
Know your Claim: Include all amounts owed for all accounts and affiliates.
Secured or Unsecured: Know whether you are a secured creditor and file properly.

Note, a creditor can have a secured & unsecured claim in the same bankruptcy.

Need Help?

Let us prepare, file, and monitor for a recorded proof of claim! For more information on how NCS Credit can assist in filing your bankruptcy proof of claim, contact us today.

Blanket Filing or PMSI Filing

Posted on March 9, 2023 by wpengine - UCC Financing Statements

Should You Use a Blanket Filing or a PMSI Filing?

There are primarily two types of secured transactions under Article 9 of the Uniform Commercial Code: Blanket Filing and Purchase Money Security Interest (PMSI) Filing. There are other applicable business transactions for a UCC filing, such as consignment, bailment, tooling, warehousing arrangement and installments/promissory notes. Today we are going to focus on Blanket & PMSI filings.

What is a Blanket Filing?

A Blanket filing is a security interest in all assets of your customer on a non-priority basis, eliminating potential conflict with your customer’s primary lender. The priority or payout in a bankruptcy is determined by the filing date (first in time, first in right). The UCC filing elevates the status of your accounts receivable to that of a secured creditor.

Blanket filings are applicable when providing financing, selling services, or in situations when your customer “consumes” or otherwise does not stock your goods.

What is a Purchase Money Security Interest?

A PMSI filing provides the same benefits as the blanket filing with the addition of the priority of repossession of specific identifiable goods, primarily inventory or equipment that your company would provide.

Purchase Money Security Interest in Equipment

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.

Who would file a PMSI in Equipment? Creditors who supply items like medical exam tables, copy machines and walk-in coolers; equipment your debtor would keep/not re-sell.

Purchase Money Security Interest in Inventory

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.

Who would file a PMSI in Inventory? Creditors who supply goods to a debtor for the purpose of the goods being resold; Panasonic sells car stereos to Best Buy who in turn sells them to their customers.

Timely Filing

Much like other credit remedies, there are “deadlines” for filing a timely Financing Statement.

Blanket Filing – The filing should be recorded prior to lending or shipping.
PMSI in Equipment – To achieve priority in equipment the UCC-1 Financing Statement must be recorded within 20 days of when the debtor receives possession of the collateral.
PMSI in Inventory – To achieve priority in the inventory the UCC-1 Financing Statement must be recorded and authenticated notification letters must be sent before the debtor receives possession of the collateral.

Did You Know?

A creditor can file a PMSI and Blanket Filing on the same collateral. Unsure which filing your company should be doing? Contact us today!

Editor’s Note: This content was originally published in February 2015. It has since been updated and revised for 2023.

The Competitive Advantage of UCC Filings

Posted on March 8, 2023 by wpengine - UCC Financing Statements

Did You Know UCCs Give You a Competitive Edge when Extending Credit?

UCC Filings Promote Commerce

In 1952, the Uniform Commercial Code (UCC) was created in an effort to promote commerce between states. Prior to the creation of the UCC, selling between states was similar to how we sell between countries today – there was a great deal of risk involved and little financial security available. Once the UCC was in place, it afforded creditors additional security, therefore enabling creditors to extend more credit aka more sales.

UCC Filing Program is a Team Effort

When implementing a UCC filing program, it’s important to understand the widespread benefits: minimize financial risk, reduce DSO, improve cash flow and increase sales. Wait, “increase sales” – I know you are wondering if you read that correctly – yes, increase sales. UCC filing is more than reducing risk; it’s about the opportunity to expand your market, by providing you with the security needed to sell to marginal accounts and by providing the added security needed to increase existing clients’ credit lines.

In order for a UCC filing program to be successful, there needs to be interdepartmental cooperation. Of course, the credit department will be involved, as UCCs are a means of mitigating your company’s financial risk, but a successful program needs to include involvement from your sales department. After all, it’s quite likely that your sales representatives will be acting as the conduit for signed documentation (i.e. Security Agreement), which means they should have a vested interest in the process.

How UCC Filings Will Benefit Sales

Because your sales team will be involved in the UCC process, it will help if they understand why you’re implementing UCC filings, and how it will benefit them.

What Your Sales Reps Should Know about UCCs

No cost to your customer: The core of properly perfect UCC filing is the security agreement. Your customer doesn’t have to pay to sign a security agreement – it’s like signing any credit agreement. The costs associated with the UCC filing will be paid for by your company (and those costs are minimal).

**UCC filings are NOT reported to credit bureaus**

In the unlikely event that your customer files for bankruptcy protection, a properly perfected UCC elevates your company to a secured creditor position.

If your customer never files bankruptcy and never defaults on payment, then it will seem as though the UCC doesn’t even exist – it’s like an invisible shield: it’s there to offer protection if you encounter harm, but completely unnoticeable in a world of fiscal harmony. If your customer does file bankruptcy and you have properly perfected a UCC filing, you may be able to recover goods and/or funds extended to your customer.

BONUS: If your customer defaults on payments, the Security Agreement can be used as leverage for breach of contract. In every Security Agreement, there are payment terms written into the agreement. Therefore if your customer defaults (i.e. doesn’t pay timely), they are breaching the terms of a signed agreement.

Your company is not the only company securing its accounts receivable through the UCC process. Financial institutions and your competitors are filing UCCs as well. Trust me – your company is not the only company mitigating risk through UCC filings. Hundreds of thousands of companies throughout the country (even in Canada, Mexico, Australia and New Zealand) are securing receivables through the UCC process. Did you know that mortgages, car loans and secured lines of credit often have security language written right into the document? And, when you sign that document, the security language allows those companies to file a UCC. UCCs are a simple part of everyday business.

Minimized Risk = Fewer Write-Offs (If customer write-offs are factored into your compensation/bonus, you may want to pay attention) It’s simple: fewer write-offs lower the costs associated with your product > lower costs mean you can sell at a lower price while maintaining profit margins > selling at a lower price makes your company more competitive, opening the doors to a larger market share > more sales with stable profit margins = a happy boss!

UCC filings create sales opportunities: Sounds counterintuitive – an extra step will result in more sales opportunities? The UCC offers additional security, which means you may be able to sell to marginal accounts that were previously out of reach. How many times have you had the sale lined up only to hear your credit rep tell you “Well, they are going to need to put more money down, based on their financials we can’t justify extending the credit.”? The UCC may substitute for monies down or compromised credit limits.

UCC Filings Create a Competitive Advantage

As you know, the business world is aggressively competitive. Many companies are securing their accounts receivable and those who aren’t are placing themselves at a competitive disadvantage. Take the opportunity to minimize losses and to create opportunities.

NCS Credit Is Your UCC Filing Expert

We are UCC experts and we can help you implement a full service UCC Filing Program. Need help with a single filing? We do that too! Contact us today.

Editor’s Note: This content was originally published in March 2015. It has since been updated and revised for 2023.

Safe Harbor Won’t Save Your Florida UCC

Posted on October 31, 2022 by Kristin Alford - UCC Financing Statements

Florida is serious about UCC filings. A recent Court of Appeals decision left a creditor with an unperfected security interest, when its UCC Financing Statements were deemed Seriously Misleading because it identified its debtor as “1944 Beach Blvd., LLC” instead of “1944 Beach Boulevard, LLC.”

We previously reviewed this case (you can read our original post), hoping that perhaps Safe Harbor could rescue the creditor’s security interest. Unfortunately, in Florida, you must strictly comply with Article 9-503(a), or your security interest is toast.

Yep, You Know the Importance of Complying with Article 9-503(a)

You file UCCs. So, I know you already know how critical it is to strictly comply with Article 9, and you know Article 9-503(a) dictates how the debtor’s name should appear on the UCC Financing Statement. And yet, you and I watch as creditors lose their security because they fail to comply.

The difference between Boulevard and Blvd. may seem minor. It’s a common abbreviation, right? Sure, maybe in the context of a street address. But, when it’s an organization’s name and you are filing a UCC on that organization, you’re best served to list the organization’s name exactly as it appears on the public organic record.

Article 9-503(a) of the Uniform Commercial Code dictates how the debtor’s name should appear on the UCC Financing Statement.

Whether the debtor is a registered entity or an individual, Article 9 says:

Registered Entity: list the name on the Financing Statement as it appears in the public organic record
Individual: Alternative A or Alternative B
- Alternative A: if the debtor holds an unexpired driver’s license, the Financing Statement must list the debtor’s name as it appears on the unexpired driver’s license.
- Alternative B: the debtor’s driver’s license name, the debtor’s actual name or the debtor’s surname and first personal name may be used on the Financing Statement.

Now, there may be occasions where a minor error can be overlooked: enter Safe Harbor.

What Is Safe Harbor? Look to Article 9-506

Even if there are minor errors or omissions on your UCC filing, you may still have a valid filing. How? Safe Harbor essentially saves your UCC filing, if a search of your debtor’s name, using a filing office’s “standard search logic,” discloses the UCC – even with minor errors.

Now, the tricky thing here is although International Association of Commercial Administrators developed standard search logic rules, “standard search logic” is actually dictated by the filing office (not really standard, right?).

Case Recap & Decision

1944 Beach Boulevard, LLC (Beach Boulevard) filed for Chapter 11 bankruptcy and later filed a complaint to avoid Live Oak Banking’s (Live Oak) UCCs because Live Oak abbreviated Beach Boulevard’s name on the Financing Statements.

Live Oak listed Beach Boulevard’s name as “1944 Beach Blvd., LLC” and claimed the abbreviation of Boulevard to Blvd. was a minor error and didn’t unperfect its security interests.

While contemplating its decision, the Court of Appeals reviewed two different cases. The first case says “Hey, if the UCC doesn’t show on the first page of search results, it’s seriously misleading. End of story.” The second case says “Well, you know, the website says to view additional search results you can click previous or next. So really, the search on prior pages or subsequent pages, should be reviewed by the searcher, as long as it’s within reason.”

But, before the Court of Appeals could issue a decision on the fate of Live Oak’s security interest, it needed the Supreme Court to answer three questions:

(1) Is the “search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic,” as provided for by Florida Statute § 679.5061(3), limited to or otherwise satisfied by the initial page of twenty names displayed to the user of the Registry’s search function?

(2) If not, does that search consist of all names in the filing office’s database, which the user can browse using the command tabs displayed on the initial page?

(3) If the search consists of all names in the filing office’s database, are there any limitations on a user’s obligation to review the names and, if so, what factors should courts consider when determining whether a user has satisfied those obligations?

The Supreme Court only needed to address one: “Is the filing office’s use of a ‘standard search logic’ necessary to trigger the safe harbor protection of section 679.5061(3)?” The answer, much to the dismay of Live Oak, is “Yes.”

In short, since the filing office doesn’t use “standard search logic” the creditor’s security interests can’t be saved by Safe Harbor.

Will Safe Harbor Ever Exist for Florida UCCs? Zero Tolerance

Safe Harbor is dependent on the filing office using a “standard search logic.” Since Florida’s registry doesn’t have a “standard search logic” that means Safe Harbor can’t save your UCC.

“Because the Registry lacks a “standard search logic,” the search contemplated by section 679.5061(3) is impossible, which means that filers are left with the zero-tolerance rule of section 679.5061(2).” 1944 Beach Boulevard, LLC v. Live Oak Banking Co., No. SC21-1717, 13 (Fla. Aug. 25, 2022)

Zero Tolerance.

A stark reminder to ALWAYS correctly identify your debtor on the UCC Financing Statement and complete a reflective search to ensure your UCC has been correctly filed.