Now that the dust has begun to settle from the enactment of the 2010 Amendments to UCC Article 9 (the “Amendments”), some UCC filers have lingering concerns regarding what form versions they should use and the impact of the new forms on electronic filing. This article addresses those issues and offers some best practice suggestions for avoiding potentially risky form errors.
There are two different sets of forms now in use. The first consists of the forms designed to implement the Amendments (the “new forms”). Those have a revision date of 04/20/2011 (revision dates are located at the bottom of the forms). The other set of forms in use consists of all prior versions approved by the International Association of Commercial Administrators (“IACA”) before 2011, including the 07/29/98 forms set forth in § 9-521 of Revised Article 9 (the “old forms”).
The old forms may not be sufficient in some situations after the Amendments took effect, such as when the collateral is held in a trust or is being administered by a personal representative. The checkbox labels on the old forms do not provide the new debtor name sufficiency indications required by the Amendments in § 9-503(a)(2) and (3).
Likewise, the new forms do not provide all the information necessary to comply with the statutory requirements in place before the Amendments took effect. Unfortunately, not all states currently have the Amendments in effect. Therefore, secured parties must choose forms based on whether the Amendments are in effect in the filing state. A full list of the status of the Amendments in each state is available at http://csctransactionwatch.com/amendments/.
Amendments are in Effect
The Amendments took effect in the vast majority of states on July 1, 2013. The best practice for filing UCC records in those states is to use only the new forms. The old forms may be sufficient for many common transactions. However, the old forms do not comply with the new debtor name requirements if the collateral is held in a trust or being administered by a personal representative. Therefore, the best practice is to use the new forms for filing all UCC records in states where the Amendments are in effect.
Nevertheless, there may still be instances where a secured party prefers to use the old forms, perhaps because all the parties to a transaction approved the records in that format. That may still be an option, although it is not recommended.
Most state-level filing offices decided to offer a grace period during which they would continue to accept the old forms after the Amendments took effect. However, these offices commonly limited that grace period to 30 days. Consequently, any attempt to submit the old forms after August 1, 2013 carries a high risk of rejection. Again, the best practice to avoid this risk is to use the new forms for filing UCC records in any state where the Amendments are in effect, even if that means some extra work to transfer the information from already prepared old forms.
Amendments are not in Effect
One state, Missouri, enacted the Amendments with an effective date of August 28, 2013. However, Missouri is not the only state where the Amendments are not yet in effect. Despite a flurry of legislative activity in late June, several states failed to enact the 2010 Amendments before to the uniform effective date of July 1, 2013. It may be a year or longer before the Amendments take effect in the following states:
- Alabama: The 2010 Amendments legislation was the next bill to be considered for final passage when the legislature adjourned on May 20, 2013. The bill will need to be reintroduced in 2014.
- Arizona: The 2010 Amendments bill was stalled in committee for much of the year, but an attempt was made to move it forward near the end of the session. The bill actually passed both chambers, but was still awaiting House concurrence in the Senate actions when the legislature adjourned on June 14, 2013. The bill will need to be reintroduced in 2014.
- California: The legislature introduced the 2010 Amendments legislation with a delayed effective date of July 1, 2014. Consequently, there does not appear to be a sense of urgency to get it enacted by a particular date. The bill has passed the Assembly and is currently making its way through the Senate.
- New York: The legislature finally introduced the 2010 Amendments on June 20, 2013, as part of a UCC omnibus bill that included revisions to Articles 1 and 7, plus amendments to Articles 3 and 4. Due to the size and complexity of the bill, quick action was not likely. The bill remains in the Assembly. However, the legislature meets year round, so the bill could be enacted in the next several months. Nevertheless, the 2010 Amendments may not take effect until July 1, 2014, to give the state and local filing offices sufficient time to prepare.
- Oklahoma: A bill to enact the 2010 Amendments was introduced in 2011, but did not make it out of committee and was carried over into 2012. Late in the 2012 session the bill did make some progress, but it did not pass before the legislature adjourned. The bill was reintroduced in 2013, but never made it out of committee.
- U.S. Virgin Islands: The 2010 Amendments still have not been introduced in the legislature.
- Vermont: The bill nearly passed, but did not come up for final consideration before the legislature adjourned in May. The legislation will have to be reintroduced in 2013.
Until the Amendments take effect in these states, secured parties must continue to use the old forms. A UCC record submitted on the new forms before the effective date may be rejected by the filing office. Moreover, the new forms cannot make the indications required for sufficiency of the record in some circumstances, such as when the debtor is a decedent’s estate, trust or trustee acting with respect to property held in a trust. Those indications, required by former § 9-503(a)(2) or (3) for debtor name sufficiency, cannot be made with certainty using the new forms. Therefore, UCC filers should always use the old forms when filing in these states, even if the filing office will accept the new forms.
Homemade Forms—Beware of Rejection
The new forms were created using Adobe software and officially exist only in PDF format. Some UCC record preparers, however, prefer to use word-processing software, such as Microsoft Word®, to generate UCC forms. To do so, the new forms must be recreated as a document or template. However, using these recreations may be risky for the secured party.
Many filing offices use computerized UCC indexing systems. These systems are extremely sensitive to the form layout. What might be referred to as “homemade” or “cloned” forms may be convenient for the filing party, but any form or format deviation, no matter how small, can cause problems for the indexing systems. That can be the case even if the deviation is not readily apparent to the naked eye.
Due to the potential complications for indexing, some filing offices will refuse to accept any homemade form unless it is utterly indistinguishable from the official PDF version approved by IACA. Even tiny differences in the text, font, or field layout anywhere on the form could result in rejected or mis-indexed record.
To avoid these risks, UCC form preparers have a couple options. One is to use the fillable PDF forms created by IACA (they are available on the IACA website or through Corporation Service Company at http://csctransactionwatch.com/amendments/). The other is to submit the homemade document to IACA for pre-approval. Once IACA approves the homemade form, it can be used in all jurisdictions that accept approved forms.
New Forms and Electronic Filing
A written or PDF form is not itself part of the UCC record. A UCC “record” consists of the information required by Article 9. The form simply provides an organized and convenient way to communicate a record to a filing office.
Similarly, an electronic filing system offers just another method of communicating the UCC record. There is no necessary connection between an electronic filing system and the forms, other than that they both must convey the information required by statute. Nevertheless, the design of many electronic filing systems generally mimics the forms because the layout is familiar to those who file or search UCC records.
Many state filing offices, perhaps 25 or more, did not have their electronic UCC filing systems upgraded to reflect the new debtor name indications or to eliminate debtor organization fields by the effective date of the Amendments. Most of those expect to have the upgrades completed by October 2013.
Some UCC filers have expressed concern that records submitted electronically through these systems may not be sufficient until the system fully reflects the new rules. Fortunately, these concerns are largely unfounded, except for when the record must make one of the new indications required by § 9-503(a)(2) or (3).
A UCC filer cannot submit records that indicate the collateral is being administered by a personal representative or that the collateral is held in a trust until the electronic filing system complies with the Amendments. Until a filing office completes the upgrades, records that require those indications must be submitted as written records. Otherwise, secured parties can confidently continue to submit records electronically, even if the system still has fields for the debtor’s organization information or displays the filing acknowledgement using the old form view.
Until all states have the Amendments in effect and the filing offices have their systems upgraded, those who file UCC records must be careful to avoid the potential risks this situation entails. All written UCC records submitted for filing in states where the Amendments have taken effect should use the new 04/20/11 version forms. Written records submitted for filing in those few states where the Amendments have not taken effect should only use the old forms.
UCC records can safely be filed electronically in all jurisdictions, except when the record must make one of the new § 9-503(a)(2) or (3) indications. In that case, the secured party should submit a written record using the new forms if the filing office has not yet upgraded its electronic filing system to permit the new indications.
For more detailed information on the enactment status of the Amendments, acceptable forms and other useful information about the Amendments, please visit our resource center at http://csctransactionwatch.com/amendments/.
Paul Hodnefield is Associate General Counsel for Corporation Service Company and a frequent speaker/writer on UCC due diligence issues. Please feel free to contact him with questions or comments at firstname.lastname@example.org or 800-927-9801, ext. 62375.