Filing and Perfection Rules under Revised Article 9

  1. Where do I File? Before Revised Article 9, Arkansas law required a creditor to file financing statements, either as a matter of law or in accordance with good practice, both with the Secretary of State and each county in which the collateral was, or likely would be, located. Revised Article 9 eliminated "dual" filing. Now, a creditor needs to file a financing statement in one office. Which office depends on the type of collateral involved and the location of the debtor.

     

    As an initial note, it is possible to perfect a security interest by filing in the following types of collateral: Accounts, Tangible Chattel Paper, Electronic Chattel Paper, Commercial Tort Claims, Negotiable Documents, Equipment, Inventory, Farm Products, Fixtures, General Intangibles, Instruments, Goods, Investment Property, and Motor Vehicles (if Debtor is a Dealer). Whether this is the method of perfection you choose is another issue. Assuming, however, you decide to perfect your security interest by filing, let's take a look at the rule changes about where to file.

    1. As a general rule, the correct filing office now depends on where the debtor NOT the collateral is located. ACA 4-9-301(1). There are two exceptions:

       

      1. The state where the collateral is located can govern perfection and priority rules if that state has not adopted Revised Article 9. ACA 4-9-301(2) – this should now be a non-issue since all 50 states have adopted RA9.
      2. The state where farm products are located governs perfection and priority rules. ACA 4-9-302.
      3. Side Note: The old "four-month rule" now applies when Debtor changes its location to a new jurisdiction. ACA 9-316(a)(2).
    2. The location of a Debtor is generally determined as follows:
      1. An individual is located at his or her principal residence.
      2. A registered organization (i.e. a business entity that is formed by filing) is located in the state in which it is organized.
      3. A non-registered organization is located at its principal place of business, if it has one place of business or at its chief executive office, if it has more than one place of business. ACA 4-9-307(b), (e) & (f).
    3. If the Debtor is located in Arkansas, the correct filing office is the Arkansas Secretary of State UNLESS:
      1. The collateral is as-extracted collteral or timber to be cut or goods that areor are to become collateral – File where mortgages are filed. ACA 4-9-501(a)(1). Side Note: New Financing Statements do not require Debtor's Signatures, but Arkansas law requires all instruments affecting real property be signed and notarized. ACA 18-12-201 et seq. Accordingly, you should attach an exhibit to the Financing Statement when presenting as a Fixture Filing.
      2. The transaction involves an agricultural lien – File in the office of the circuit clerk where the farm products are located.
      3. The debtor is engaged in farming operations AND the collateral is (i) equipment used in farming operations, (ii) farm products, or (iii) accounts arising from the sale of farm products – File in the office of the circuit clerk where the debtor is located. ACA 4-9-501(a)(2).

      As these rules demonstrate, Article 9 now covers agricultural liens. This means, for example, that landlords of farm leases are no longer entitled to super-priority liens on growing crops to secure lease payments. Under Former Article 9, these security interests were created by operation of law without the necessity of filing and trumped all other interests in such collateral. Now, landlords and other similar agricultural-related lien holders, must obtain a subordination agreement and file financing statements to trump the crop lender. See ACA 4-9-310(a). This outcome may cause members of the Arkansas legislature to revisit this issue when the General Assembly re-convenes in 2003.

      Revised Article 9 expands the kinds of collateral that can be perfected by filing, including instruments and investment property. ACA 4-9-301(a). The availability of perfection by filing does not preclude perfection by other means available for that type of collateral, such as possession or control (as appropriate).

  2. What Do I File? – Electronic vs. Paper Filing Revised Article 9 no longer speaks in terms of filing signed written financing statements. It uses the terms "record" instead of financing statement and "authenticate" instead of signature. These changes paved the way for electronic filing. In anticipation of Revised Article 9, the Arkansas Secretary of State set up an electronic filing system with the assistance of a private third party vendor. The Secretary of State has been accepting electronic "financing statements" for over a year and while there are still some bugs to work out, by and large the system has worked well.

    In order to file electronically, you must set up an account with the Secretary of State. You can do so by linking to http://www.sosweb.state.ar.us/. When filing an initial financing statement electronically, you will immediately receive a control # and, unless there is a problem with the filing, should receive a filing number within 24 hours. Termination statements, amendments, and continuation statements are handled in the same way.

    There are a number of advantages to electronic filing, including the ability to check the status of filings quickly and the substantial reduction of potential filing office rejection. A few problems I've encountered with Arkansas' electronic filing system includes the inability to fit long collateral descriptions in the online filing box [I am told this problem has been resolved by allowing the filer to attach a separate document to the filing] and the inability to check the filing as a whole for typos, etc. before submission. Because filing can occur with the push of a button, inadvertent filings can also be problematic.

  3. Requirements for Sufficiency Although this issue is closely related to how to avoid filing office rejection, a few sufficiency basics are covered here. At the most basic level, a financing statement or "record" must contain the names of the debtor and the secured party or the secured party's representative, and a description of the collateral. ACA 4-9-502. There are a number of nuances to these requirements.

    First, you must use the debtor's "real" – not a fictitious or trade name. ACA 4-9-503(a). The debtor's name is effective as a matter of law if a computer search run under the standard search logic of the filing office using the debtor's correct name turns up the financing statement with the incorrect name. ACA 4-9-506(c). The court has no discretion to determine if the incorrect name is "close enough."

    Second, you must include the debtor's address, indicate if debtor is an individual or an organization. If the debtor is a registered organization, you must include the type of organization, its jurisdiction of organization, and provide the state organizational number, or, if applicable, state none. ACA 4-9-516(b)(5). You should use the partnership name of a non-registered organization with a partnership name, but the name of partners, members, or associates for a non-registered organization with no partnership name. ACA 4-9-503(a)(4). You must use the debtor's last name if an individual. ACA 4-9-516(b)(3)(C). You cannot use the business name of a sole proprietorship.

    Third, a secured party does not necessarily need to indicate it is acting in a representative capacity for others. ACA 4-9-503(d). You must include the address of the secured party though. ACA 4-9-516(b)(4).

    Fourth, a financing statement may now contain an "all assets" collateral description, assuming this is consistent with the deal. ACA 4-9-504(2). The security agreement must, however, describe the collateral by collateral type. Otherwise, you should consult ACA 4-9-108 to determine the sufficiency of collateral descriptions for financing statement purposes. Collateral type descriptions are sufficient in most transactions, except in consumer transactions or when describing commercial tort claims, securities entitlements, securities accounts, or commodity accounts. If the collateral covers fixtures, as-extracted collateral, or timber to be cut, the financing statement must contain a legal description and the name of the record owner of the real estate, if other than the debtor.

    Fifth, Revised Article 9 no longer requires signatures. ACA 4-9-502. A secured party can file a financing statement only if "authorized" by the debtor. § 4-9-509. Accordingly, loan applications should be revised to include an authorization to pre-file.

  4. How to Avoid Filing Office Rejection Under Former Article 9, "presentation for filing of a financing statement and tender of the filing fee" constituted filing. Old 4-9-403. One of the disappointments in Revised Article 9 is the expanded role of filing officers to scrutinize filings. Revised Article 9 provides a filing officer, "shall refuse to accept a record for filing for any reason set forth in [ACA 4-9-516(b)]." ACA 4-9-516(b). In theory, the clerk's authority to reject a financing statement is limited to the list of 516(b) (discussed below). ACA 4-9-520(a). In reality though, these changes have created a number of problems for the unwary when presenting paper financing statements; problems which are not apparent from the face of the statute and arise from the, at times, capricious interpretations of filing officers. You can take a look at the Secretary of State's Administrative Rules for Revised Article 9, including sufficiency rules, at: http://www.sosweb.state.ar.us/ucc_admin_rules.pdf. These changes have inserted ambiguity and timing problems in commercial transactions, particularly when you need immediate assurance (such as at a closing) that a filing has been accepted.

    With that said, the statutorily-prescribed reasons for rejecting a financing statement (ACA 4-9-516(b)) (along with a few "interpretations") are as follows:

    Okay, so what happens if your financing statement is rejected? Even though the clerk's office is supposed to keep up with the times and dates of rejected financing statements and creditors are given an opportunity to cure defects, other secured parties and buyers of the collateral can jump ahead of the creditor attempting to file the rejected financing statement, even if rejection was improper. This is because, as between two "innocent" parties, Revised Article 9 places the loss on the person whose financing statement was rejected. ACA 4-9-516(d).

    1. Failure to Communicate the "Record" by an Authorized Method or Medium of Communication. This language, along with the safe harbor provisions in ACA 4-9-521(a) regarding the use of the National UCC forms, has prompted the Arkansas Secretary of State to generally only accept the National Forms. Clerks routinely reject financing statements (and termination statements) if the form is non-uniform or contains a signature.
    2. Failure to Submit Correct Fee. This is not new.
    3. Inability of Filing Office to Index Record because: (a) it does not contain the debtor's name; (b) an amendment or correction statement does not identify the initial financing statement to which it relates or relates to a lapsed financing statement; (c) does not contain an individual debtor's last name; or (d) the record does not provide a sufficient description of the real property to which the collateral relates.
    4. Failure to Provide Secured Party's Name and Address.
    5. Omit Key Information about the Debtor. The Arkansas Secretary of State takes the position a financing statement must include ALL of the information described in ACA 4-9-516(b)(5) – (i) debtor's address, (ii) type of debtor – individual or organization AND (iii) if an organization, indicate the type of organization, jurisdiction of organization, AND the identification number of the organization or state debtor has no such identification number. This means that if, in the case of an Arkansas corporation, you fail to complete the organizational identification number box with "None" or "N/A," the clerk may reject your written financing statement.
    6. Failure to provide the name and mailing address of an assignee.
    7. Attempt to file a continuation statement outside of the six-month window before the lapse date of the financing statement to which the continuation relates.
  5. Perfection by Alternative Methods In addition to filing, a secured party may perfect its security interest by possession, control, or automatic perfection upon attachment. Revised Article 9 clarifies some of the perfection rules of old Article 9. It also permits the use of a financing statement to perfect a security interest in some kinds of collateral that formerly could be perfected only by other means.

    Revised Article 9 modifies the method of perfecting a security interest by possession where a third party has possession of the collateral. Most decisions under former ACA 4-9-305 hold that the secured party can perfect its security interest in collateral held by a bailee by giving notice of the security interest to the bailee. Revised Article 9 requires the bailee to acknowledge in an authenticated record that it is holding the collateral "for the secured party's benefit." ACA 4-9-313(c).

    As a result of amendments to Article 8, Former Article 9 permitted "control" of investment property as a method of perfecting a security interest. For a security entitlement, there must be an agreement between the secured party and securities intermediary that the intermediary will comply with entitlement orders originated by the secured party without further "consent" of the debtor. ACA 4-8-106, 9-106(a). Revised Article 9 clarifies that the secured party's agreement with the debtor that the secured party will not exercise its control rights until debtor's default, does not interfere with perfection. Control does not occur if the secured party's future exercise of control requires the debtor's consent.

    Control is now an approved method of perfection for deposit accounts, letter-of-credit rights, and electronic chattel paper. ACA 4-9-314(a). The meaning of "control" for deposit accounts closely resembles that for a security entitlement. ACA 4-9-104. For electronic chattel paper, control requires a unique "marking" of the electronic chattel paper. ACA 4-9-105. A secured party has "control" of a letter of credit right when it obtains the consent of the issuer of the letter of credit to the assignment to the secured party of the proceeds of the letter of credit under ACA 4-5-114(c). ACA 4-9-107.

    Revised Article 9 provides for automatic perfection in several circumstances, including sale of payment intangibles and sale of promissory notes. ACA 4-9-309. These automatic perfection rules do not apply to obligations secured by payment intangibles or promissory notes, as opposed to a sale. There is also automatic perfection of a security interest in a supporting obligation and in a security interest that secures an obligation that itself is collateral. Other examples, like a PMSI in consumer goods, are carried over.

  6. Priority Rules Defined Generally Article 9 continues the long-standing rule that the first secured party to perfect its security interest has priority. ACA 4-9-322(a)(1). Article 9 still defers to the rights of holders in due course under Article 3, protected purchasers under Article 8 and equivalent parties under Article 7, "to the extent" those articles provide rights to those persons.

    A secured party with a security interest in investment property or electronic chattel paper may perfect its security interest by filing or control. A secured party that perfects a security interest in investment property only by filing will not have priority against a secured party that later perfects by control, even if the second secured party knows of the prior perfected security interest. Similarly, the right to perfect a security interest in an instrument by filing does not protect against another secured party that perfects by taking possession of the instrument, unless the second secured party knows that its purchase violates the rights of the first secured party. ACA 9-330(d).

    A security interest arising out of the sale of a promissory note is automatically perfected. Generally, a subsequent secured party that takes possession of the promissory note will have priority over a secured party that perfects its security interest solely through the automatic perfection rules, unless the subsequent secured party knows that its security interest violates the rights of the first secured party.

    Former Article 9 generally provided that two secured parties that each have control of investment property rank equally. Revised Article 9 changes the rule to first in time priority. The same rule applies to perfection of a security interest in a deposit account, where control is the only method of obtaining perfection. ACA 4-9-327.

    A securities intermediary that obtains a security interest in a security entitlement or securities account maintained with the intermediary, or a depositary that obtains a security interest in a deposit account maintained with the depositary, will each have automatic "control" of the collateral for purposes of perfection. ACA 4-8-106, 4-9-104(a)(1) and 4-9-106. Each of those persons will have priority over another secured party, even if the other secured party has previously perfected its security interest by obtaining control of the collateral. ACA 9-327(3) and 9-328(3). In addition, the special priority rule does not apply if the other secured party has obtained control by becoming the entitlement holder under ACA 8-106(d)(1) or the customer of the depositary under ACA 9-104(a)(3). The same is true for the depositary's set-off rights. ACA 4-9-340.

    In addition to the general priority rules, the transition rules have created their own sub-set of priority issues. A few of these matters are discussed next.

    1. If Revised Article 9 does not require a creditor to take any further action to create or to perfect its security interest or to gain priority over another creditor, the security interest continues and is entitled to priority until the earlier of: (i) the date on which the creditor's financing statement would otherwise lapse or terminate under Former Article 9, or (ii) June 30, 2006. ACA 4-9-703(a), 705(c).

       

      Example 1

      Debtor, an Arkansas corporation, having a place of business in more than one county in Arkansas, granted a non-purchase money security interest in "equipment" located in the state of Arkansas to SP-1 on January 1, 2000. In accordance with Former Article 9, SP-1 filed a financing statement covering equipment with the Arkansas Secretary of State's office on January 2, 2000, to perfect its security interest. Revised Article 9 became effective in Arkansas on July 1, 2001. On July 2, 2001, Debtor granted a security interest in the same collateral to SP-2 who filed a financing statement with the Arkansas Secretary of State adequately describing the collateral on the same day. Because Revised Article 9 does not require SP-1 to take any further action to create, perfect, or obtain priority over SP-2, SP-1's security interest remains enforceable and maintains priority over SP-2 until December 31, 2004, which the earlier date between (i) the date SP-1's financing statement was set to lapse under Former Article 9 and (ii) June 30, 2006. ACA 4-9-703(a).

    2. If Revised Article 9 requires a creditor to take any additional action to attach or perfect a security interest, or to gain priority over another creditor beyond that required by Former Article 9, the original creditor's security interest remains enforceable and is entitled to priority over a competing creditor until June 30, 2002. ACA 4-9-703(b)(1). If the original creditor fails to satisfy the requirements of Revised Article 9 within the one-year period, the security interest may lose its priority, its perfection status, and even its enforceability. ACA 4-9-703(b).

      Example 2.1

      On December 15, 2000, a consumer debtor granted a security interest in all of his securities accounts to SP. SP properly perfected its security interest on the same day pursuant to Former Article 9. While the description, "all securities accounts" was sufficient for a security interest to attach under Former Article 9, it is deficient under Revised Article 9 since securities accounts cannot be described in a financing statement merely by collateral type. See § 4-9-108(e). If SP does not obtain a newly authenticated security agreement from debtor by June 30, 2002, SP's security interest will no longer be enforceable, perfected, or otherwise entitled to priority.

      Example 2.2

      Debtor granted a security interest in an "instrument" to SP by signing a security agreement covering this collateral on March 1, 2001. On April 1, 2001, SP perfected its interest under Former Article 9 by possession when it notified Debtor's bailee of SP's interest on the same day. After Revised Article 9 became effective on July 1, 2001, however, the bailee failed to authenticate a record acknowledging it holds the collateral for the benefit of SP, as Revised Article 9 requires. If the bailee fails to take this action on or before June 30, 2002, SP's security interest will no longer be perfected. Although not entitled to priority over competing perfected security interests in the same collateral, SP's security interest will continue to be enforceable.

      Example 2.3

      On March 1, 2000, Debtor granted a security interest in all its "accounts" to SP. On July 1, 2001, Revised Article 9 became effective and the term "accounts" was expanded to include lottery winnings.

      Question: On July 2, 2001, did SP have an enforceable interest in the lottery winnings?

      Answer: No, because the term "accounts" did not include lottery winnings on March 1, 2000, the date on which the security interest was originally created. This result may be different if the collateral described in the original security agreement defined the term "accounts" as, "accounts as defined in the UCC Article 9 of Arkansas, as that definition may be amended from time to time."

    3. If: (i) the collateral description contained in a financing statement is sufficient to perfect a security interest under Revised Article 9 and (ii) the security interest remains enforceable under Revised Article 9, an otherwise unperfected, but enforceable, security interest under Former Article 9 (e.g. due to the financing statement's inadequate description of the collateral) may become perfected as a matter of law on July 1, 2001. ACA 4-9-704.

      Example 3

      On July 1, 2000, debtor granted a security interest in all its property to SP. Assume the following: (i) while this description was adequate for a security interest to attach under Former Article 9, it was deficient to perfect the security interest because prevailing case law required a more complete identification of collateral in the financing statement; and (ii) SP filed its financing statement in the proper location under Revised Article 9. Under this situation, SP's unperfected security interest became automatically perfected on July 1, 2001. If a security interest does not meet the requirements for enforceability under Revised Article 9, however, the security interest will only be enforceable until June 30, 2002. See § 4-9-704.

    4. If: (i) a creditor takes all steps necessary to perfect a security interest which did not require a financing statement filing under Former Article 9, and (ii) the security interest attaches before June 30, 2002, the security interest will become perfected, without any further action by the creditor, on the date the security interest attaches and will remain effective at least until June 30, 2002. See § 4-9-705(a). In some circumstances, if Revised Article 9 does not require the creditor to take any additional action to perfect its security interest, the creditor's security interest may continue for a longer period of time.

      Example 4

      On June 1, 2001, SP-1 took possession of a note in which D had rights. On July 1, 2001, Revised Article 9 became effective. On July 2, 2001, D granted a security interest in all of its "instruments" to SP-2. SP-2 then properly perfected its security interest under Revised Article 9 by filing a financing statement on the same day. On July 3, 2001, SP-1 loaned money to D, required D to sign a security agreement that described the note, and continued to possess the note. SP-1's security interest in the instrument attached at this time and its security interest became perfected by possession. SP-1's security interest in D's note that SP-1 possesses remains perfected and retains priority over SP-2 even though SP-1's security interest did not attach until after Revised Article 9 became effective. Furthermore, because SP-1 may perfect its security interest in instruments by possession under Revised Article 9, SP-1's security interest will continue to be perfected and retain priority over SP-2 even after June 30, 2002. Note, however, this result would be different if SP-1's security interest did not become enforceable by June 30, 2002, or if Revised Article 9 had required SP-1 to take additional action to perfect its security interest.

    5. Unless otherwise prohibited by ACA 4-9-706, a creditor who, before July 1, 2001, filed a financing statement that complies with Revised Article 9's perfection rules, but which was defective under Former Article 9, as a matter of law, perfected its security interest on July 1, 2001. ACA 4-9-705(b).
    6. Former Article 9 determines priority disputes if the relative priorities were established before Revised Article 9 became effective. Revised Article 9 determines priority in all other cases. ACA 4-9-708(a).

      Example 6.1

      On July 1, 2000, D granted a security interest in "accounts" to SP-1. SP-1 did not file a financing statement, and failed to perfect its security interest. Revised Article 9 became effective on July 1, 2001. On August 1, 2001, D granted a security interest in the same accounts to SP-2. SP-2 files a financing statement on the same day. Because the relative priorities of SP-1's and SP-2's claims were not established on July 1, 2001, Revised Article 9 governs priority. Under Revised Article 9 (ACA 4-9-322(a)(1)), SP-2 is entitled to priority.

      Example 6.2

      On July 1, 2000, D granted a security interest in accounts to SP-1. SP-1 failed to perfect its security interest because it never filed a financing statement. On December 1, 2000, D granted a security interest in accounts to SP-2. SP-2, likewise, never filed a financing statement. On July 1, 2001, Revised Article 9 became effective. The relative priorities of SP-1's and SP-2's security interests were established before Revised Article 9 became effective. Former Article 9, therefore, governs priority and SP-1 is entitled to priority to debtor's accounts pursuant to Former Article 9 (§ 4-9-312(5)(b)).

      The establishment of priorities between two creditors holding unperfected security interests on July 1, 2001, does not, however, prevent possible future priority changes.

      Example 6.3

      Assume the same facts as of Example 6.3, except SP-2 filed a financing statement on August 1, 2001. Until this date, the respective priorities between the secured parties were established. By filing a financing statement after July 1, 2001, however, SP-2 re-ordered the priorities between the parties. Revised Article 9 governs this matter and SP-2's security interest is entitled to priority. Revised Article 9 is, therefore, effectively a race statute for creditors in this situation.

      Example 6.4

      On December 1, 1999, D granted a security interest in its rights to receive lottery winnings, classified as a "general intangible" under Former Article 9, but as an "account" under Revised Article 9. Although SP-1 filed a financing statement that covered "accounts," its security interest remained unperfected because it inadequately described the collateral (lottery winnings) under Former Article 9. On June 1, 2000, D granted a security interest in the same collateral to SP-2. SP-2 then filed a financing statement covering both "accounts" and "general intangibles" on the same day. SP-2's action perfected its security interest in the winnings under Former Article 9 and established SP-2's priority over SP-1 under Former Article 9 (Former § 4-9-312(5)). On July 1, 2001, Revised Article 9 became effective. Since the relative priorities between the parties between SP-1 and SP-2 were established on the date Revised Article 9 became effective, Revised Article 9 does not apply. One should note, however, that if Revised Article 9 did apply, SP-1 would be entitled to priority over SP-2 under the first-to-file-or-perfect rule set forth in ACA 4-9-322(a)(1).

      Example 6.5

      Assume the same facts as Example 6.4, except SP-2 made the same mistakes as SP-1 by describing the collateral as "accounts" in the financing statement it filed. On July 1, 2001, Revised Article 9 became effective. Former Article 9, nonetheless, governs the dispute since SP-1's and SP-2's relative priorities were established before Revised Article 9 became effective. SP-1, therefore, is entitled to priority because its security interest was the first to attach (see Former § 4-9-312(5)(b)). This result would be different if Revised Article 9 applied to this situation. Under Revised Article 9, ACA 4-9-704, both SP-1's and SP-2's security interests became perfected on July 1, 2001.

    7. Even though a security interest may not attach until afterJuly 1, 2001, a creditor's act of properly filing a financing statement under Revised Article 9 before July 1, 2001, will give the creditor a July 1, 2001, perfection date. ACA 4-9-708(b). See also: ACA 4-9-322(a) (the first-to-file-or-perfect rule).

      Example 7.1

      On June 1, 1999, D granted a security interest in its then existing and after-acquired "instruments" to SP-1. SP-1 filed a financing statement covering instruments on the same day. On June 1, 2000, D granted a security interest in its existing and after-acquired "accounts" to SP-2. SP-2 filed a financing statement covering "accounts" on the same day. Revised Article 9 became effective on July 1, 2001. On September 1, 2001, one of D's account debtors gave D a promissory note to evidence its obligation to pay an overdue account. Because SP-1's and SP-2's relative priorities were not established when Revised Article 9 became effective, Revised Article 9 governs priority. Under the first-to-file-or perfect rule of Revised Article 9, ACA 4-9-322(a), SP-1 is entitled to priority over SP-2 as to the note because SP-1 filed a financing statement before SP-2 which covered "instruments." Section 4-9-322(b), however, states that, while SP-1's priority dates from July 1, 2001, SP-2's priority in the proceeds of its collateral dates from the original filing covering collateral, or June 1, 1999. SP-2, therefore, is entitled to priority.

      Example 7.2

      Assume the same facts as in Example 7.1, except D also granted SP-2 a security interest in its existing and after-acquired instruments to SP-2. SP-2 filed financing statements covering "instruments" on the same day. Revised Article 9 governs priority since the security interest was not created until after Revised Article 9 became effective. The first-to-file-or-perfect- rule applies and SP-1 is entitled to priority over SP-2.

WHAT DO I NEED TO DO ABOUT REVISED ARTICLE 9 NOW?

  1. Don't Panic. Revised Article 9 will not affect many routine local transactions.

     

    For example, X, Inc., an Arkansas corporation, granted a security interest to SP in equipment and inventory located in Arkansas on 1/1/99. Because X does not do business in more than one county in Arkansas, SP files a financing statement with both the Secretary of State and the county. When Revised Article 9 became effective on July 1, 2001, SP's security interest will remain perfected until 12/31/03 because the one year rule will not apply. To continue the effectiveness of the security interest, SP can simply file a continuation statement – there is no need to file an initial financing statement to comply with Revised Article 9.

  2. Review Financing Statements Filed Since July 1, 1997.
    1. Set up a tickler system to renew the financing statements described in Section I by filing a continuation statement.
    2. Determine if all other financing statements are properly perfected under Revised Article 9. if not, file an initial financing statement in the correct office as quickly as possible – but no later than June 30, 2002.
  3. For all new financing statements, think about the collateral carefully and ask yourself if the type description has changed under Revised Article 9.

     

    1. When describing collateral in all financing statements, add the phrase, "as defined in the UCC Article 9 of Arkansas (Ark. Code Ann. § 4-9-101 et seq.), as that definition may be amended from time to time."
    2. If possible, consider taking a security interest in general intangibles when securing accounts and vice versa.
    3. Anticipate new collateral – it will not hurt to add the new types of collateral in any blanket collateral description (e.g., commercial tort claims, healthcare receivables).
    4. When taking collateral in securities, comply with Revised Article 9 § 108(e) – describe the securities particularly. This generally means no after-acquired security interests in this collateral.
  4. When conducting lien searches for entities with collateral in states other than its state of organization, remember to conduct lien searches in both states until June 30, 2006. After such time, lien searches only need to be conducted in the state of the company's organization.