CT Lien Solutions Blog

July jurisdictional holidays

Please note that because States often make last minute changes to their closing schedules, this chart is subject to change.

State	Holiday	Date
CT, ME, WI	Furlough Day	July 2
GA	Independence Day	July 2
AL, AK, AZ, AR, CA, CO, CT, DE, DC, FL, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NY, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, UT, VT, VA, WA, WV, WI, WY	Independence Day	July 5
HI	Furlough Day	July 16
UT	Pioneer Day	July 23
HI	Furlough Day	July 23

Hot topic #2 - Pre-filings and terminations

We often get asked the question: “When to file?” Keep in mind that when entering a transaction, pre-filing serves as notice to a claim, and can save the party from the expense and hardship of constant diligence throughout the life of the deal. Though it may be true in your business that the majority of deals never actually close, for those that do, the effective date becomes the date of the pre-filing, not the date of the closing! Wouldn’t you rather lock in a place in line (hopefully first!) instead of risking other secured parties jumping in ahead while the deal is being worked? Not only do you secure your position through pre-filing, but you avoid the need for update searches as the deal is worked.

This sometimes spurs more questions. A recent one we fielded relates to an interesting scenario: Three parties are all pursuing a transaction. The first two parties each file pre-filings, but it is a third bank that closes. That bank needs the first two parties to terminate their filings. What should the bank do? While there are various ways to handle this, one option is for the bank to stipulate that the debtor must tell the first two parties to terminate, with a notice, say 20 days. After that notice, if the parties have not terminated, the debtor is authorized to terminate the filings itself.

As always, CT Lien Solutions is here to advise on your public records searching and filing queries. Have a question? Email it to info@ctliensolutions.com.

Highlights of the UCC Seminar in New York on 6/15

Earlier this week CT Lien Solutions hosted its Uniform Commercial Code Seminar in New York. CT Corporation’s Managing Attorney Tim Hall shared recent findings and best practices in UCC filing and searching, including information regarding the upcoming RA9 amendments.

Among the items discussed in yesterday’s seminar was what to expect of the pending changes to the UCC forms. We give you a heads-up below. For all the info, be sure to catch the next seminar or webinar in your area! Click here for more details.

New forms

New forms will be part of the model act in 2013. Changing practices now will help you avoid problems later, and ease the transition period! Form revisions will likely affect:

• Individual debtor names
• Treatment of decedent’s estates/trusts
• Special transactions (e.g., public finance)
• Fixture filings and real estate information
• MORE changes coming over next few months!

Thanks to everyone who attended our seminar. We hope to see you at the next one!

Hot topic #1 - The battle of the factors

You asked, we answered. One of our readers—a factor providing Accounts Receivable funding to businesses seeking working capital—submitted a complicated hypothetical for discussion.

Here’s the scenario:

• The backstory: Client has a bank UCC lien on file, covering accounts, based on a term loan of $1M. Accounts Receivable history averages $2M. Factor deems it’s okay to be the second UCC lien on accounts and goes into the deal.
• Trouble stirs: Factor files a second UCC on accounts, subordinate to the banks. All goes well for some time. Then…factor learns that New Factor has stepped in and taken over. New Factor has had client sign a factoring agreement. New Factor bought the bank note secured by the first UCC on accounts. New Factor filed a third UCC on accounts relating to the factoring agreement.
• He said/she said:
  • New Factor is asserting that it has all rights to the accounts because of the first UCC lien on accounts assigned to it from the bank.
  • Factor had actual notice of the term loan and the limits on the term loan when it went into the deal.  
• So who’s got claim??

This seems to be a very common scenario in the factoring industry. We asked a few of our UCC consultants for their thoughts, and here’s what they had to say:

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While there are details missing that might be pertinent to the overall rights, a critical piece of criteria might lie with the security agreement. This document—not on the public record—might give more information as to the limits of the term loan agreement. Also, it’s a little unclear as to whether New Factor has a third factoring agreement, or whether it has merely purchased the note relating to the initial factoring agreement.

Let’s assume the following, though. There are three factoring agreements/security agreements. As such, each of the three security agreements (factoring agreements) may or may not identify specific accounts that are covered (as stated above, this depends on the language of the security agreement). We’ll assume that the security agreement identifies specific accounts. There are three financing statements filed, each of which relates to a specific security agreement. Each of the secured interests is limited to the value indicated in the security agreement, which it appears is $1M for the first but is unknown for the subsequent transactions.

Given the above scenario, New Factor is basically going to take over whatever rights the initial lender had, which are known to Factor and were contemplated when it entered into its initial deal. Whether those rights are exercised by bank of New Factor is somewhat irrelevant. Factor is going to maintain the same second position it had, and New Factor will have third position regarding the accounts subject to the third security agreement and filed financing statement. Again, the issue is somewhat dependent upon whether the specific accounts are identified or whether the security agreement uses a generic reference to “account.”

The practical result here will be New Factor “buying out” the first Factor at some point. The hitch in that transaction will be the fees and costs, as these agreements can be harsh.

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Has anyone else run into a similar scenario? Let us know what you think.

News from IACA's 33rd Annual Conference

Recently, Tim Hall from CT and Zena Bania and Glenn Trapse from CT Lien Solutions attended IACA’s (International Association of Commercial Administrators) 33rd Annual Conference in Austin, Texas. This Annual Conference is IACA’s marquee event for collaborating, developing and sharing best practices to improve the efficiency of filing offices. The theme this year was “Taking Your Administration to a Great State”.

While there were no significant outcomes involving UCC from the meeting, we did note:

• XML (e-Filing) update: 17 states have implemented XML; 5 states (undisclosed at this time) are planning or are implementing.
• The Filing Chart on IACA's website is a source that many jurisdictions are directing their employees to look at in determining the filing acceptance.
• A number of states are now using Twitter and Facebook as a marketing tool, but they point back to their own websites for any functionality.

As always, we will remain in close contact with IACA and keep everyone posted on the latest developments.