UCC Article 9: What International Secured Parties Need to Know

UCC Article 9 Overview: Learn what you should know about Article 9 of the Uniform Commercial Code (UCC) if you are conducting business in the United States.

UCC Filings vs. UCC Searches: Understand how UCC filings provide public notice of security interests and how UCC searches help identify existing filings during due diligence.

The Uniform Commercial Code is a set of commercial laws adopted by all U.S. states in a standardized manner (with some variations) to facilitate commerce between companies and individuals.

Among other things, Article 9 of the UCC provides a framework for filing information about secured transactions with the Secretary of State or central filing office in the state in which a company is formed. This information is publicly available to all interested parties. This framework differs substantially from the methods used to create, file, and satisfy charges against a company in common law countries such as the United Kingdom.

UCC Filing

When a company or individual (the “debtor”) borrows money from a bank or financial institution (the “creditor”) against certain assets (the “collateral”), the creditor may file a UCC financing statement (UCC-1) for this secured transaction with the Secretary of State or central filing office where the company is registered.

The purpose of filing a UCC-1 is generally to perfect the secured party’s interest in the collateral and help establish its priority against competing claims, including in the event of the debtor’s default or bankruptcy. In other words, the secured party has a security interest in the debtor’s collateral. Filing a UCC-1 generally perfects that security interest and provides public notice of the secured party’s interest to third parties, such as other prospective lenders.

Article 9 of the UCC provides detailed guidance on how UCC financing statements are to be filed, and each U.S. state has adopted it with certain variations. There could be circumstances where a particular collateral asset is used to finance multiple loans. In these cases, the date of filing of a UCC-1 by each secured party determines the priority of its claim on the collateral.

UCC Searches for Due Diligence

In the U.S., UCC searches have been a part of due diligence processes for many decades. Commercial and investment banks, financial institutions, private investors, and other interested parties will usually undertake a UCC search before engaging in a commercial transaction with a company to identify existing UCC financing statements filed against the company and assess security interests that may affect its assets or the proposed transaction.

A UCC filing does not affect the day-to-day operations of a company, nor does it indicate a lack of creditworthiness. It serves as a tool for potential investors, lenders, and other third parties to assess the degree of a business’s financial leverage.

Generally speaking, UCC financing statements are filed at the state level, usually with the Secretary of State’s office where the company is organized. However, to uncover UCC fixture filings, it is important to also search at the county level where the real property is located.

Tax Liens and Judgment Liens

If you are a lender conducting due diligence on a potential debtor, it is important to look for other types of liens, such as tax liens and judgment liens against a company, in addition to conducting UCC searches. These types of statutory liens are usually maintained in searchable indexes at the state and local levels and are not governed by UCC Article 9 filing and search rules.

Due to the nuances involved in UCC and other lien searches in the U.S., it is advisable to use a professional third party to undertake the searches.

_{This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.}