As indicated in a previous blog post, Benefit Corporations: Update from IACA, representatives of COGENCY GLOBAL INC. attended this year’s annual conference of the International Association of Commercial Administrators (IACA). In this post, we will share information related to secured transactions that was discussed at the conference.
Changes to UCC Model Administrative Rules
A committee of the Secured Transaction Section of IACA has been working for the past year on suggested revisions to the Model Administrative Rules (MARS). MARS was developed to standardize procedures and search logic for all state filing offices. While adoption of the model rules is not required, most states base their rules on MARS, albeit with some modifications.
Originally, the committee was formed to analyze what changes to MARS were needed for the 2010 amendments to the UCC, but once the committee began its work, it was agreed that numerous additional issues needed to be addressed as well. The committee, which included Despina Shields of COGENCY GLOBAL INC., presented its recommendations at the conference, and virtually all of the recommendations were formally approved into an updated version of the MARS.
Some of the revisions to MARS are below:
- The term “Active Record” has caused great confusion for users of UCC records since the major changes to the UCC that were made in 2001, as there is no clear understanding of what it means. It was recommended that this term be removed from MARS and there will only be two terms used to refer to a UCC record: “unlapsed record” and “record.” In conjunction with searching, “active record” was changed to “searchable index.”
- How long should transmitting utility filings stay on record? This is also a topic that has caused a fair amount of confusion over the years. Revisions to Section 313.1 of MARS provide guidance to filing officers and recommends that transmitting utility filings remain in the searchable index until at least one year after they have been terminated with respect to ALL secured parties of record. In the comment to this section of MARS, the reason for this approach is explained as follows: “… filing offices can never know with certainty whether the filing of a termination statement is effective to terminate the record with respect to the purported secured party... Consequently, the best practice is for the filing office to maintain transmitting utility financing statements in the searchable index until a party provides adequate evidence that the record was effectively terminated by all secured parties of record…”
- Data entry rules should be modified to account for foreign characters. Characters not found on a standard American keyboard should be replaced with either the closest reasonable equivalent or an asterisk. Most jurisdictions attending the meeting felt the asterisk was a better option.
- Titles, prefixes and suffixes of individual debtor names have created some filing, indexing and searching problems over the years. Titles, prefixes (e.g. “Ms.”) and suffixes or indications of status (e.g. “M.D.”) are not typically part of an individual debtor’s name. Suffixes used to distinguish between family members with identical names (e.g., “Jr.”) should be provided in the Suffix field. However, if the suffix appears on a driver’s license used as the source of an individual name, then the filer should consider also providing the name as a separate individual debtor with the suffix included in the surname field. Regardless of how it’s provided, the filing office will enter a name into the UCC information management system exactly as it appears.
Personal Property Registries outside the U.S. Based on Canada’s PPSA
A number of jurisdictions from around the world attended the conference and described their Personal Property Registries, most of which were based not on the U.S. Uniform Commercial Code, but rather the Personal Property Security Act (PPSA) in Canada:
- Liberia: Newly adopted (in place for less than a year), the Collateral Registry of Liberia is run by the Central Bank of Liberia. Prior to that, only real property was registered. Liberia launched an electronic system in 2014 which requires basic information pertaining to the filing (debtor and secured party names and addresses, collateral description and duration of the lien) and allows the document(s) to be uploaded. The hope is that the registry will make Liberia more business-friendly and allow more loan transactions. Liberia is working hard, using an advertising campaign and keeping costs very low, to get use of the registry generally adopted, but has been hampered by the Ebola outbreak. At the IACA conference, it was mentioned that Liberia currently has only 37 registered users and 61 registrations.
- Australia: Prior to its adoption of the PPSA in 2012, Australia had a maze of laws, registries and regulations pertaining to liens on real property. As of January 2015, everything has been fully migrated over, so a PPSA search is sufficient to determine all liens. There is still some redundant data on file due to the transition that they will be cleaning up this year. One unusual aspect of the way secured transactions are handled in Australia is that a secured party can go to court to ask that that a registration that is lapsed or terminated in error be reinstated. If they can prove that other parties will not be affected by this, the courts will take a pragmatic approach and allow it.
- Nova Scotia has had PPSA laws in place since 1997. A unified electronic recording and searching system (ACOL) is in place that is shared with the other Atlantic provinces. This allows smaller provinces to share the costs and provides much more robust systems than could otherwise be provided. Nunavut and the Northwest Territories have become a part of this system and Yukon may be joining in 2016. A 24-hour system was originally envisioned, but could not be implemented due to the time difference between the Eastern provinces and the Western Territories. So they close for 4 hours each day.
- Jersey developed a Securities Interest Law of 2012. The previous system was based only on tangible assets, which are generally not a big part of the assets for Jersey companies. The law is based on the New Zealand PPSA law. (For more information, visit the website of Jersey’s Financial Services Commission.)
At the conference, it was mentioned that the United Kingdom is also considering moving to a PPSA-type of system.
As you can see, filing officers from the U.S. and around the world have been working hard to improve their secured transactions filing systems!
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.