Service Area: UCC Services

Avoiding UCC Filing Pitfalls: Name Accuracy Tips

Posted on September 9, 2019 by - UCC Financing Statements

How to List the Individual’s Name

I can’t begin to tell you the number of times I have said or written some variation of “… when filing a UCC, always list the individual’s name as it appears on the unexpired driver’s license …” I’m certain if you run a query via the NCS blog for “9-503(a)” you will find oodles of information. I’ve said it oodles of times, because it’s true; it’s right there in UCC Article 9! It’s true, until a court case drops and mucks it all up.

UCC 9-503(a)… I Feel Like a Broken Record

Correctly identify and list the debtor’s name on the Financing Statement in compliance with UCC 9-503(a). Whether it is a registered entity or an individual, Article 9 lays it out:

  • 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.

It’s straightforward. If it is an individual, review their driver’s license and list their name on the Financing Statement exactly as it appears on the unexpired driver’s license. Should I repeat one more time? List the debtor’s name exactly as it appears on the unexpired driver’s license. I do sound like a broken record… do folks still play records?

The Court Case That Mucked It Up

I’ll do my best to break this down –

  • The Jurisdiction: Wisconsin
  • The Debtor: Jeffrey Ossmann
  • The Arguing Secured Parties with an Interest in Same Collateral: Northside Elevator, Inc. and Bremer Bank

2014

Jeffrey Ossmann (Ossmann), a farmer, obtained two loans from Bremer Bank (Bank). In turn, Ossmann and Bank executed a security agreement and Bank filed a UCC. On the Financing Statement, Bank identified Ossmann as “Jeffrey A. Ossmann” which was the name on Ossmann’s unexpired license.

2016

In 2016, Ossmann was issued a new license. The name on the new license was “Jeffrey Alan Ossmann“.

Time Out! Under ordinary circumstances, what should Bank do right now (if it was 2016 and within four months of the name change)? Yes, Bank should file an amendment and list the debtor’s name as “Jeffrey Alan Ossmann.” Good! Back to the timeline.

2017

Northside Elevator, Inc. (Northside) had been selling seed and fertilizer to Ossmann. When Ossmann was unable to pay the balance, an agreement was executed and Northside filed a UCC. On the Financing Statement, Northside identified Ossmann as “Jeffrey Alan Ossmann” which was the name on Ossmann’s unexpired license.

2018

Northside claimed its security interest took priority over Bank’s because Bank’s Financing Statement did not correctly list Ossmann’s name as it appeared on Ossmann’s unexpired license. (“Jeffrey Alan Ossmann” for those still with me.)

The Blah-Blahs

As with many court proceedings there is a great deal of information, but only small bits are of interest to me; this is what I call the blah-blahs. The case goes on to review the various bits of Ossmann failing to pay, descriptions of the collateral, the legalities of Northside appealing the Circuit Court’s ruling in favor of the bank, and the relevant bits of Article 9: correctly identifying the debtor, what is seriously misleading, standard search logic and what constitutes minor errors/omissions.

Standard Search Logic, Not So Standard?

Northside claims that Bank’s security interest is unperfected, because a search on “Jeffrey Alan Ossmann” (Ossmann’s license name when Northside filed its UCC) did not reveal Bank’s UCC filing.

“Northside asserts that the name ‘Jeffrey A. Ossmann’ on Bremer Bank’s financing statement renders the statement seriously misleading, under WIS. STAT. § 409.506(3), because a search of DFI records using the name ‘Jeffrey Alan Ossmann’ did not reveal Bremer Bank’s financing statement.”

Clearly, the tricky business with the search is due to the variance of middle name vs. middle initial. To offer clarity, the court explained the search logic.

“(1) NAME SEARCHED. A search request shall set forth the full correct name of a debtor or the name variant desired to be searched and specify whether the debtor is an individual or an organization. The full name of an individual shall consist of a first name, a middle name or initial, and a last name, although a search request may be submitted with no middle name or initial and, if only a single name is presented, it shall be treated as a last name… A search request shall be processed using the name in the exact form it is submitted.”

OK, this makes sense. Northside did a search by the debtor’s full correct name: Jeffrey Alan Ossmann. Bank’s filing did not appear in the search result, which would make Bank’s Financing Statement seriously misleading / unperfected. So, what’s the problem? According to the court, Northside didn’t use a logical search.

“Section DFI-CCS 5.04(1)(e) provides: ‘For first and middle names of individuals, initials shall be treated as the logical equivalent of all names that begin with the initials, and no middle name or initial shall be equated with all middle names and initials.'”

Huh?

Essentially, a search for “Jeffrey A Ossmann” should display all Jeffrey Ossmanns with either a middle name beginning with “A” or the middle initial “A.” In theory, a search for “Jeffrey A Ossmann” would display results for Jeffrey Armstrong Ossmann, Jeffrey Awesome Ossmann, Jeffrey A. Ossmann, etc. So, the court is saying, if Northside had simply searched by “Jeffrey A Ossmann” it would have seen Bank’s existing UCC filing.

In fact, the court stated the following –

“A searcher who fails to take advantage of the DFI’s search logic cannot later complain that a financing statement is seriously misleading if that statement would have been disclosed if the searcher had availed himself or herself of the search logic.”

** Screeching Record Noise Plays Here **

“We conclude that, because a search of the name ‘Jeffrey Alan Ossmann,’ using the DFI’s search logic, and any permissible name variations permitted by that logic, would have disclosed Bremer Bank’s financing statement, that statement is not seriously misleading.”

Wait, What? Why? What?

I’m going to say it: I don’t agree with the court in this case. I understand the court’s reasoning, in that I understand the usefulness of a vague search (“Jeffrey A Ossmann”). But I don’t understand how Northside can comply with Article 9 and then get burned for doing so. Northside identified the individual by the unexpired license and searched the records by the same name. Northside complied with Article 9.

There’s a Lesson Here

Despite my frustration with the court in this case, there is a useful lesson here. When searching, take the extra minute to search a logical variation of the name. What’s considered logical? Well, that’s for another post, but in this case if there is a middle name, try a quick search using just the middle initial and not the full middle name.

Furnishing Labor and Performing Labor Are Different

Posted on August 12, 2019 by - Mechanic's Liens & Bond Claims, UCC Financing Statements

According to Oklahoma Court of Appeals, Furnishing Labor and Performing Labor Are Different

An Oklahoma Court of Appeals has determined mechanic’s lien rights don’t extend to a party furnishing labor, because under Oklahoma statute, furnishing labor and performing labor are not synonymous.

Protecting Lien Rights in Oklahoma

When you are furnishing to a private project in Oklahoma, you secure your right to file a mechanic’s lien by serving a prelien notice upon the owner and prime contractor within 75 days from last furnishing materials or service. The prelien notice may not be required if you are contracting directly with the owner, if the lien claim is less than $10,000, if the lien claim is for retainage only, or if the project is a non-owner-occupied residential project.

If you need to file a lien and you contracted with the contractor or the subcontractor, you should file the lien within 90 days from last furnishing. However, if you contracted with the owner, the lien deadline is within 4 months of last furnishing.

Oklahoma Court of Appeals States Furnishing Labor & Performing Labor Aren’t the Same

The Case: Advanced Resource Solutions, LLC v. Stava Building Corporation & Mid-Continent Casualty Company v. McDermott Electric, LLC

The Parties:

  • General Contractor: Stava Building Corporation (Stava)
  • Subcontractor: McDermott Electric, LLC (McDermott)
  • Sub-Sub and/or Supplier: Advanced Resource Solutions, LLC (ARS)

The Chain of Events

Stava hired McDermott as an electrical subcontractor for the construction on the Luther-Walmart project. McDermott contracted with ARS, a temporary staffing agency, and ARS provided temporary laborers. The contract between McDermott and ARS was “laborers for commercial construction on an open account.”

ARS provided laborers to McDermott on this open account, for the construction on the Luther-Walmart project, for several months. When McDermott failed to pay over $100,000 in outstanding invoices, ARS filed a mechanic’s lien. After the lien was filed, Stava filed a bond to discharge the lien from the property.

After Stava posted the bond, the question of whether ARS held a valid lien claim came up. Stava argued that Oklahoma’s lien statute states the lien claimant “must have performed labor” to have a valid claim. This is an excerpt of Stava’s argument from the court decision:

“ARS was a professional employer organization (PEO) and did not “perform labor” as required under the lien statutes. Therefore, ARS, a supplier or provider of labor, was not within the class of persons entitled to assert a mechanic’s lien in Oklahoma.”

Of course, ARS disagreed, claiming it is a “…temporary staffing company, as it was the direct employer of the licensed journeymen and apprentice electricians that worked on the Walmart Project. Thus, it was the employer that furnished labor within the meaning of the lien statutes and therefore a proper lien claimant.”

 The Court Says

“ARS merely furnished labor, licensed apprentice and journeymen electricians to McDermott, who then actually labored. Furnishing labor is not the same as performing labor.”

Unfortunately for ARS, the Court of Appeals determined ARS is not within the class of parties entitled to mechanic’s lien rights. Why? Because technically, ARS wasn’t the party performing the labor, ARS provided people who performed the labor.

Is this a distinction without a difference?

No, as it turns out, the Court of Appeals decision indicates that statute may have afforded ARS lien rights if it were a contractor instead of a subcontractor. In other words, the statute specifically includes ‘performs’ labor or ‘furnishes’ labor under the statute for contractors, whereas the statute for subcontractors only includes ‘performs’ labor, not ‘furnishes’ labor.

“In the present case, under the contractor statute, § 141, any person who performs labor or furnishes labor, materials, or equipment under a contract to make improvements to real property shall have a lien on the real property for the value of that labor, materials, or equipment. However, under the subcontractor statute, § 143, the Legislature choose to limit potential lien claimants to those who actually perform labor or furnish materials or equipment. The Legislature did not include those who furnish labor.”

Did ARS Have Other Options? UCCs Maybe?

After reviewing this case, I spoke with Cindy Bordelon, NCS’ in-house UCC expert and manager. We discussed the details of the case and I asked Cindy whether ARS could have filed a UCC when it initially contracted with McDermott.

“Yes! Based on the case information, ARS provided the laborers on an open account, essentially extending credit.  Article 9 allows the securing of an ‘Account’ which is defined by 9-106 as ‘any right to payment for goods sold or leased, or for services rendered.’ With a signed security agreement granting the security interest, ARS could have filed a UCC on McDermott.”

Even though ARS says they provided the laborers for a specific project, the Luther-Walmart?

“Certainly. Actually, since it appears ARS provided the laborers on an open account, McDermott could have used the laborers on any project, and a valid UCC filing could have protected ARS.”

If you furnish labor (i.e. temporary staffing) or if you furnish materials & are too remote for lien rights, you may want to consider implementing UCCs.

Key Collection Questions & Important Documentation

Posted on July 22, 2019 by - Credit Risk Management

Prep to Collect: Key Collection Questions & Important Documentation

You’ve gone around and around with your debtor for weeks, maybe even months, but still haven’t received past-due payments. You decide you need collection assistance and think about hiring an attorney. These four collection questions can help determine the best debt recovery plan for your business and better assist in communicating with and demanding payment from your customer.

Four Questions to Consider When Placing Your Collection with an Attorney

How Much Am I Owed?

The amount of money you’re owed can greatly impact how you proceed with the collection process. If it’s a larger past-due payment and/or from a high-risk account, you may want to bypass an in-house placement and send your case right to an experienced attorney for review.

How Past-Due Is the Payment?

It’s important to know exactly how long your receivable has gone unpaid. There could be a pertinent underlying reason for late payments, such as your debtor experiencing financial distress, or maybe there are payment issues higher up the ladder of supply. It’s critical to get out in front on the collection process because the longer an amount goes unpaid, the harder it is to collect. Some studies indicate that after six months the collectability of a past-due amount can be reduced by as much as 52%.

Am I Involved In an Ongoing Dispute with the Debtor?

If you’re involved in an ongoing dispute with the debtor, over issues such as invoice discrepancies or quality-of-work, it could result in late payments. Therefore, we recommend placing your collection with an attorney who will work quickly to resolve dispute(s) and ultimately get you paid.

Is It a Secured Amount?

If you have security in place, such as a UCC filing, mechanic’s lien or bond claim, we recommend attorney involvement to best leverage your security. For example, if you have a lien on an unpaid project, an attorney can assist in resolving the balance owed, including, if necessary, foreclosing on that lien. Similarly, if there is a UCC in place, an attorney can proceed with replevin action or repossession through the courts.

Importance of Documentation in the Collection Process

Why Do I Need Supporting Documentation?

Any collection professional needs thorough, up-to-date information to best demand payment from your debtor. Providing the proper documentation at the start of the collection process will allow an attorney to efficiently and effectively handle your claim – putting you in the best position for receiving payment.

What Type of Documents Do I Need?

Supporting documentation? The more the merrier! Every collection attorney requires basic information such as the debtor’s full name, physical address and the amount owed. However, we recommend you also provide any additional paperwork that supports your claim. This could include signed invoices, written contracts or agreements, proofs of delivery and/or bills of lading. With access to proper backup documentation, the collector can speak more intelligently regarding your claim and even speed-up the collection process.

Important Documents to Include

  • Contract or Agreement
  • Credit Application
  • Invoices and Statement of Account: this should include copies of returned / NSF checks
  • Purchase Orders
  • Proof of Deliveries
  • Personal Guarantee
  • Trade References
  • Correspondence & Notes: this could include emails, letters (demand letters, payment requests & notices) and documented phone conversations
  • Corporate Certificate: this should include your debtor’s legal identity, including whether it is a corporation, partnership or proprietorship
  • Credit Report

Unfortunately, there’s no sure way of determining the collectability of a past-due account. Therefore, it’s best to weigh the costs against the potential debt recovery and be proactive in your efforts – start taking steps to secure future receivables today.

Are you caught up in past-due payments and need some collection expertise? Let our national network of attorneys, specializing in secured and unsecured commercial collections, help get you paid!        

Selling Fuel on Consignment? Don’t Forget to File a UCC!

Posted on July 19, 2019 by - In Other Commercial Credit News, UCC Financing Statements

In Bankruptcy, Who Has Priority Over the Proceeds from Consigned Goods? Depends on Whether the Consignment is Governed by UCC Article 9

Selling Fuel on Consignment? Don’t Forget to File a UCC!

In a bankruptcy proceeding, who has priority over the proceeds from consigned goods? Is it the bankruptcy trustee or the consignor of the goods? The answer in this case depended on whether the consignment was governed by Article 9 and then whether the consignor filed a UCC-1 Financing Statement. Spoiler alert: the consignment was governed by Article 9 and the consignor did not file a UCC. The bankruptcy trustee wins.

Let’s Take a Drive

I commute from one side of the city to the other, which means a I rack up a ton of fuel-perks from the local gas station. This morning, as I scolded myself for not stopping to gas up last night, a large fuel truck struggled to pull into the gas station. As I pulled out of the gas station, trying to navigate my tiny Scion around this enormous fuel truck, I started wondering:

“If this gas station goes out of business, how does the fuel provider recover its money? Does it file a UCC? Is fuel considered inventory or is it consignment?”

I spent the rest of my commute wondering what the fuel provider could do to protect itself in the event of its customer’s bankruptcy or default — the perks of a life in secured transactions.

I finally made it to work and began perusing recent fuel-related bankruptcies, and there it was: a decision in the Pettit Oil Company (Pettit) bankruptcy. The decision addressed what a creditor should have done to protect its interest in consigned fuel.

The Consignment Arrangement

Pettit is a bulk petroleum product distributor. IPC (USA), Inc. (IPC) consigned fuel to Pettit, Pettit would then sell the fuel to customers. However, instead of Pettit paying IPC for the fuel sold, Pettit’s customers would pay IPC directly and IPC would then pay Pettit a commission on the fuel sold.

A little odd for a consignment arrangement? Sort of, but the outcome remains the same. We typically see consignment sales work like this: creditor consigns goods to debtor > debtor sells goods to customer > customer pays debtor for goods > debtor pays creditor after the sale. The title to the goods still passes after the sale of the goods, but the payment chain is slightly different.

The key here is the arrangement was classified as a true consignment.

The Issue Before the Court

At the time of the bankruptcy filing, Pettit had fuel on hand as well as some cash proceeds from customers who inadvertently paid Pettit instead of IPC. IPC claimed the fuel and cash proceeds in Pettit’s possession belonged to IPC, while the bankruptcy trustee argued the fuel and cash proceeds belonged to the bankruptcy estate.

Court’s Decision

First, the court needed to determine whether this consignment was governed by Article 9. Once the court deemed the consignment as true consignment and governed by UCC Article 9, it had to decide which party had priority in the fuel and cash proceeds.

Truthfully, the hard part was determining whether the consignment was within Article 9 – determining priority became easy: did the creditor (IPC) properly perfect its security interest? Nope – IPC didn’t file a UCC-1.

“Article 9 of the UCC governs the priority and perfection rules related to security interests in goods (which can include agricultural products), and the UCC ‘treats a consignment as a security interest for all practical purposes.’ Retention of title affects the types of remedies available to consignors (like IPC) in their efforts to recover goods after a default, but the Ninth Circuit explained: ‘title is irrelevant to whether IPC or the Trustee has a priority in the goods and proceeds.’ Ultimately, because the UCC treats Pettit (the consignee) as having an ‘ownership interest’ and IPC (the consignor) as having a ‘security interest’—and IPC (admittedly) never perfected that security interest—the Trustee prevailed.” –  Consignment, the UCC, and You – Protecting Your Goods and Their Proceeds, by Mirco Haag & Joseph Welch

Something to Think About During Your Commute

If you sell on consignment, are you properly perfecting a security interest? If you aren’t, why not? While this example was related to fuel, there are any number of sales situations where consignment applies. Remember our posts on the Sports Authority bankruptcy?

The fact is, Article 9 affords you an opportunity to take security. Yes, it is certainly possible that a bankruptcy court determines your consignment sale is not governed by Article 9, thus not needing a UCC – but why risk it?

Unraveling the Mystery of Misleading UCC Filings

Posted on June 24, 2019 by - UCC Financing Statements

Georgia Bankruptcy Court deemed creditor’s UCC filing misleading

Who enjoys a good ol’ mystery game? Today’s mystery is why a Georgia Bankruptcy Court deemed one creditor’s UCC filing seriously misleading, thus making the creditor’s security interest unperfected. First, we’ll go through the facts of the case, then review the requirements under Article 9, and then the big reveal: why was the UCC seriously misleading!

Facts of Case

In re Wastetech, LLC, Bankr. Court, ND Georgia 2019

In 2017, the debtor executed six agreements granting a secured interest to the creditor. The six agreements were executed on the following dates in 2017: June 13, July 6, July 19, August 3, August 18, and September 26.

The Debtor’s Name Change

Smack in the middle of these six agreements, on July 27, 2017, the debtor changed its name from NTC Waste Group, LLC to Wastetech, LLC.

The Creditor’s UCC Filing

On November 14, 2017, the creditor filed a UCC-1 Financing Statement. The creditor identified the debtor on the Financing Statement as NTC Waste Group, LLC. Within the Financing Statement, the creditor also provided the following collateral description:

“Certain future receivables sold by said business seller and purchased by Crown Funding Group, Inc., as buyer, pursuant to that certain purchase and sale of future receivables agreement between seller and purchaser dated 8/7/2017 (the “agreement”).”

Timeline of Pertinent Events seriously misleading timeline of events

The Debtor Files for Bankruptcy & Trustee Begins the Search

February 13, 2018, the debtor filed for bankruptcy protection. After the bankruptcy filing, the bankruptcy trustee set out to identify the creditors with UCC filings in place.

The trustee searched for UCC filings by two variations of the debtor’s current name: “Wastetech” and “Wastetech, LLC”. The trustee’s searches did not reveal any UCC filings. The trustee then submitted to the court that it also searched by the debtor’s former name (NTC Waste Group, LLC), which did reveal a UCC filing. Searching got a bit technical, here’s an excerpt from the court decision:

“… the Trustee recently conducted several UCC index searches through the GSCCCA database using the Debtor’s correct name as well as its former name… According to the Affidavit, statewide “searches using the search terms `Wastetech’ or `Wastetech LLC’ did not lead to finding the Financing Statement.” Only searches using the former name of the Debtor produced the Financing Statement.”

But wait, there’s more! The trustee was certainly thorough.

“Further searches conducted using the standard search logic in the Debtor’s name through the GSCCCA database in the Coweta County UCC Index along with a stem search for the Debtor’s name also failed to return the Financing Statement, though UCC-1’s for another entity were disclosed. Finally, additional statewide stem searches using the Debtor’s name did not disclose the Financing Statement. Based on these results, the Trustee through counsel states that ‘a search of the Coweta County UCC Index, and the Georgia Statewide UCC Index, using a debtor name stem search in the GSCCCA database for the Debtor’s correct legal name of record did not disclose the Financing Statement.’”

No Safe Harbor

The search type described above was to prove the creditor’s Financing Statement didn’t appear under the “single exception” aka safe harbor. (The single exception, according to the court decision, is “a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic” which would disclose such financing statement.”)

Corporate Search & Public Organic Record Are Not the Same

The creditor argued “…that a search of the UCC records under “NTC” did produce the Financing Statement, and that a search of “wastetech” in the records of the Georgia Corporations Division led to Wastetech LLC, which was formerly known as NTC Waste Group, LLC…”

Yes, you read that correctly “Georgia Corporations Division” (a corporate search, not the public organic record).

The creditor cited several cases regarding effective UCC filings, despite the debtor name being incorrect. Unfortunately for the creditor, the cases cited all related to UCC filings that were filed PRIOR to a debtor’s name change. The creditor also tried to argue that it filed its UCC within 4 months of the debtor’s name change — but that’s not how it works. It appears the creditor wanted the 4 month window under Article 9-507(c) to apply, except that section applies to UCCs filed prior to a name change.

OH, and the Collateral Description

There was an issue with the creditor’s collateral description – which seems minor compared to the flurry of back & forth over the correct name of the debtor. Within the UCC-1 Financing Statement, the collateral description is “certain future receivables sold by said business seller and purchased…” But it did not please the court because the collateral description is specific rather than of a category.

“Had the description been “all future receivables of the Debtor,” it would have met the requirements under Section 11-9-108 by describing the collateral through category.”

The judge is ready to decide. Is the UCC filing seriously misleading?

The judge did not mince words in the decision. The creditor’s UCC filing was seriously misleading, which made the filing ineffective and the security interest unperfected.

“First, the Debtor’s name as listed in the Financing Statement is inconsistent with its legal name on the public record. Moreover, a search of the Georgia Superior Court Clerks’ Cooperative Authority’s Lien records for the Debtor’s correct name would not have disclosed the existence of the Financing Statement. Second, the Financing Statement does not indicate that it covers all assets or all personal property of the Debtor, and it fails to provide a description of, or reasonably identify, the Debtor’s Accounts Receivable that are subject to the Defendant’s security interest. Accordingly, the Financing Statement is seriously misleading, and perfection of the Defendant’s security interest in Debtor’s Accounts Receivable is legally ineffective.”

OK, So Maybe It’s Not a Mystery. Seriously.

I admit, as far as mysteries go this was kind of lame. I mean, given the facts of this case, is it really a mystery that the creditor was left with an ineffective Financing Statement, hanging out with unsecured creditors? Failing to correctly identify the debtor on the Financing Statement, relying on a corporate search versus the public organic record, and providing a poor collateral description? Definitely no mystery. I promise to craft a better mystery next time, until then, don’t be like this creditor!

  • Always identify your customer by their name as it appears in the public organic record
  • Public organic record and a corporate search are NOT the same thing
  • Carefully review your collateral description
  • After filing, conduct a reflective search to confirm the filing has been indexed properly

Let’s Talk About Commercial Bankruptcy

Posted on June 3, 2019 by - Credit Risk Management, Mechanic's Liens & Bond Claims, UCC Financing Statements

Let’s Talk About Commercial Bankruptcy: The More You Know, the Greater Your Chance at Preserving Your Rights as a Secured Creditor

The more you understand about commercial bankruptcy and the bankruptcy process, the greater chance of preserving your rights as a secured creditor and ultimately receiving payment.

Refresher: What’s a Secured Creditor?

A secured creditor has a security interest over some or all of the assets of its debtor. This status can be achieved and maintained through a variety of credit tools such as Mechanic’s Liens, Bond Claims and UCC filings.

In the event of the debtor’s bankruptcy or default, secured creditors have payment priority over their unsecured counterparts, significantly improving the likelihood of getting paid.

The Breakdown: Chapter 7 vs. Chapter 11

In Chapter 7 bankruptcy, the debtor ceases operations, its assets are liquidated by an appointed Trustee, and the funds are used to pay the outstanding debt.

In Chapter 11 Bankruptcy, the debtor wants to continue operating. The debtor will undergo significant structural changes and arrange to pay its creditors over a set period of time.

The Bankruptcy Proof of Claim

As a creditor, it’s important you take the proper steps to protect your interest. Depending on the type of commercial bankruptcy your customer has filed, you may be required to file a Proof of Claim with the bankruptcy court by the specified date, also known as the bar date.

As per the United States Bankruptcy Court, a Proof of Claim is “a written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money.” This document is critical because it provides proof to the court that your claim amount is valid and owed, as well as what class to associate your claim with.

Generally, this document will include:

  • Debtor name
  • Case number
  • Creditor information, including mailing address
  • Claim amount
  • Basis for the claim
  • Type of claim (secured or unsecured)
  • Supporting documentation

In the event of Chapter 7 bankruptcy, you must file a timely proof of claim in order to share in any distribution of funds. The bar date refers to a date, established by the bankruptcy court and based on a variety of factors, by which the proof of claim must be filed. Often, creditors fail to submit the document in time and suffer the consequence of an invalid claim. Whether your claim amount is secured or unsecured, be sure to meet the stated deadline to preserve your rights and maximize any potential distribution.

In a Chapter 11 proceeding, it’s typically unnecessary for a creditor to file a Proof of Claim. This is because the debtor is required to file a Schedule of Assets and Liabilities, which formally lists its creditors’ claim amounts. However, filing a Proof of Claim is recommended if:

  • The claim amount is listed incorrectly on the Schedule of Assets & Liabilities or,
  • The claim amount is defined as designated, unliquidated or contingent

In these cases, if a Proof of Claim is not filed, the bankruptcy court will deem the information on the Schedule of Assets & Liabilities as correct and distribute the funds accordingly.

If your debtor has recently filed for bankruptcy, it’s critical to act quickly and take the necessary steps to validate your claim amount. Immediately determine the type of bankruptcy preceding you’re dealing with and whether you should complete a Proof of Claim form. If filing, be sure the document is accurate and ON TIME.

We Can Help

Don’t risk an invalid claim and losing out on payment distribution. Let NCS assist in preparing, filing and monitoring your bankruptcy Proof of Claim today. Contact us for more information!

Arizona Preliminary Notice Changes Coming December 2019!

Posted on May 24, 2019 by - In Other Commercial Credit News, Preliminary Notices & Construction Credit

Arizona Preliminary Notice Changes Coming December 2019!

We are often asked, “Do I have to serve an amended notice if my contract amount increases?” and, “If so, how much does my contract have to increase to warrant another notice?” Generally, we recommend serving an amended notice when your contract amount increases by 20% or more. This recommendation is based on case law, attorney recommendations, and specific statute, e.g., Arizona.

In fact, Arizona’s current statute specifically states a claimant only needs to serve one preliminary notice, unless its contract amount increases by 20% or more, then the claimant should amend its notice.

“A person required by this section to give notice…need give only one notice…unless the actual estimated total price for the labor, professional services, materials, machinery, fixtures or tools furnished or to be furnished exceeds by twenty per cent or more the total price in any prior original or subsequent preliminary notice…”

Soon “30″ Will Be the New “20″ in Arizona!

Earlier this month the Governor of Arizona signed HB1304 which updates the requirement for when an amended notice is required. For any projects where first furnishing occurs on or after 12/31/19, an amended notice will only be required if the contract amount increases by 30% or more.

“Effective for any projects where furnishings are first commenced to be furnished from and after 12-31-19, an additional notice will be required if the estimated total price for the furnishings exceeds by 30% or more the total price in a prior notice under the same contract.” – Legislative Update from The National Lien Digest

What Does This Mean for You?

Currently, under Arizona statute, if your original contract amount is $100,000 and a change order is issued increasing your contract to $120,000 (increased by 20%), you are required to serve an amended preliminary notice.

Here’s what it will look like at the end of December:

Arizona statute as of 12/31/19

Once the new statute is in effect, you may notice a decrease in the number of required amended notices; saving you time & money.

Always Perform A Reflective UCC Search

Posted on May 20, 2019 by - UCC Financing Statements

Always Perform a Reflective UCC Search: Especially on Your Recent Pennsylvania UCC Filings with Attachments

You should always perform a reflective search on each UCC filing to ensure your filing was indexed correctly. Through a reflective search you are likely to quickly catch errors in the spelling of a party name, and in the case of Pennsylvania, quickly identify when attachments aren’t recorded with the filing.

While performing a reflective UCC search on a Pennsylvania filing, our UCC Specialist identified issues with Pennsylvania’s records: attachments weren’t included with the recorded UCC filings.

Red Alert

You can imagine the potential issue with your UCC filing if your collateral description refers to an attachment, and the attachment isn’t attached.

Upon discovering the error, our UCC Specialist contacted the Pennsylvania Department of State and alerted them of the issue. In response, the Pennsylvania Department of State corrected the issue and then released a statement regarding the missing attachments. You can read the Pennsylvania Department of State’s statement via The National Law Review: Pennsylvania Bureau Notifies Filers of the Loss of Attachments Submitted with UCC Records

Here’s Jerry Bailey with the recap:

If you have questions or need assistance with searches, please contact us!