Foster Swift Business & Corporate Law Report
July 23, 2013
Revisions to Article 9 of the Uniform Commercial Code (UCC), which governs security interests in personal property, became effective on July 1st. The rules of Article 9 may apply to a variety of financing transactions, including when a manufacturer finances the purchase of equipment, when a retailer borrows money to buy inventory, and when a consumer uses store credit to purchase a new flat screen TV. Michigan is one of 39 states that have adopted the revisions to Article 9, which are intended to fix several perceived problems.
First, there was the problem of properly naming a debtor on documents filed under Article 9, such as a UCC-1 financing statement. Michigan has adopted Alternative A (“Only if”) of the two possible options that are available for individual debtors, which provides as follows:
- If the individual debtor has an unexpired driver’s license, use the name on the license;
- If the individual debtor does not have an unexpired driver’s license, but the debtor has a state personal identification card, use the name on that card; or
- If the individual debtor does not have an unexpired driver’s license or personal identification card, then use the debtor’s actual name or the surname and first personal name. In this third instance in particular, we recommend consulting an attorney to help you determine the correct debtor name.
Some states have adopted Alternative B (“safe harbor rule”), which provides that any of these three approaches is acceptable.
If the debtor is an entity such as a corporation, a limited liability company, or a limited partnership, a creditor must use the name that is set forth in the entity’s charter documents, such as its articles of incorporation or organization. Special rules also apply to debtor trusts and estates.
Second, the new forms have been revised in an effort to make them more user-friendly. For example, the following changes have been made to check boxes on the UCC-1 financing statement:
- The termination box has been moved away from the continuation box;
- Boxes to indicate that a transaction is a public finance transaction, a manufactured home transaction, or certain other special transactions have been moved from the addendum to the financing statement; and
- Trust indication boxes have also been moved from the addendum to the financing statement.
The name of the UCC “correction statement” form has been changed to “information statement.” The new form requires information regarding why the statement is being filed and who is filing it. The secured party (for example, the bank) can, but is not obligated to, file an information statement if it believes that an amendment to its financing statement was not authorized. The debtor has always been authorized to file an information statement.
Michigan’s forms are generally identical to the national uniform forms, except that the UCC-11 (information form) has been modified slightly. Michigan will accept the old forms until July 31st, but after that a creditor must use the new forms. Michigan’s filing fees will remain the same.
If the name of a debtor needs to be changed due to the new rules, there is a five-year transition period ending on June 30, 2018 during which current filings will remain effective notwithstanding the new rules. However, the transition period doesn’t change any filing deadlines. All filings still must be timely continued or renewed, and the debtor name must be corrected on the continuation or renewal. Accordingly, all continuation statements should be carefully reviewed to ensure they use the correct name for the debtor.
For more information, please contact Joel C. Farrar at (517) 371-8305 or Kelly A. LaGrave at (517) 371-8287.