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| vol 16, num 1 | September, 2019 |
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| Avoiding Liens in Puerto Rico |
| Secured creditors should file UCC-1 financing statements. A proper UCC-1 must list both the name of the debtor and a description of the collateral. In a recent case before the First Circuit, both components in initial financing statements were insufficient to perfect the secured creditors’ interests. But in this litigation in the Puerto Rico bankruptcy case, the court held that the financing statement amendments were sufficient for perfection.
Avoiding Unperfected Security Interests
A bankruptcy trustee is a lien creditor. Compared to an unperfected secured creditor, a bankruptcy trustee has superior rights. Section 544 of the Bankruptcy Code provides that a bankruptcy trustee has the power to avoid an unperfected security interest.Thus, for a secured creditor to have superior rights to a bankruptcy trustee, that creditor must perfect its security interest before the debtor files for bankruptcy.
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| Sometimes First in Time Isn’t First in Right |
| “First in time, first in right,” is one of the first things taught in a law school’s secured transactions class. Yet a recent ruling from the U.S. Bankruptcy Court for the Southern District of Mississippi reminds us that sometimes the winner of the race to the courthouse does not get the gold medal in a lien-priority contest.
In Kappa, a general contractor obtained a loan from a bank. To secure this loan, the general contractor granted the bank a security interest in its accounts receivables (among other collateral). The bank filed a UCC-1 financing statement perfecting this security interest just a few days after the security agreement was signed. Sometime later — but before the bank’s loan was repaid — the general contractor entered into public works contracts, one with the City of Waveland, Miss., and one with the Mississippi Military Department.
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| Beware of Priming Liens: Four Common Types of Priming Liens and Interests |
| In an insolvency situation, a lender’s strategy is very dependent upon the nature and extent of its collateral. Nothing can be more frustrating to a lender than believing it is in a senior position, only to find out that it has been primed. While a standard UCC Article 9 search will discover most liens and security interests, certain liens and interests require enhanced diligence. Four common types of liens and interests that require such enhanced diligence are discussed here.
IRS Tax Liens
One of the first creditors a struggling borrower will stop paying is the federal government. For example, it is not uncommon for a struggling borrower to cease paying employment and payroll taxes. The failure to pay taxes will result in the government filing a Notice of Federal Tax Lien (NFTL). Depending on state law and the type of property, the NFTL will either be filed locally or at the state level. Accordingly, an NFTL might not appear in an Article 9 search at the secretary of state’s office.
Federal tax liens can have substantial impact on an Article 9 lender, especially a lender whose primary collateral is accounts and inventory.
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| Winter Leadership Conference Registration is Now Open! |
| Join the Secured Trade Committee at ABI's Winter Leadership Conference. The Terranea Resort in Rancho Palos Verdes California is the setting for this year's annual program, which features topics designed for consumer and business practitioners, as well as financial advisors. As always, the conference provides numerous social and fun events to network and renew friendships with your colleagues from around the nation and overseas. We look forward to
seeing you in December!
This year, the Committee will be pairing with the Unsecured Trade Creditors Committee to host a session titled, The Continued Use of Blocking Detectors and Managers in Bankruptcy-Related Transactions.
Speakers for this session include:
- Jennifer L. Marines, Moderator
Morrison & Foerster LLP; New York
- Jeremy R. Fischer
Drummond Woodsum; Portland, Maine
- Thomas Strauss
Wilmington Trust SP Services, Inc.; Wilmington, Del.
- Brian C. Walsh
Bryan Cave Leighton Paisner LLP; St. Louis, Mo.
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| Secured Credit Committee Leadership for 2019 |
| For your reference, below is a full roster of the Secured Credit Committee leadership. Please consider them a resource for getting more involved in ABI volunteer activities.
You can also visit the committee's homepage for more newsletter articles, relevant recordings and other committee information.
The committee is always eager to welcome new volunteers. Please contact any member of our leadership team to find out how you can get involved.
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