Changes to Article 9 of the Uniform Commercial Code in Indiana
Effective July 1, 2013
By: Joseph L. Mulvey
March 12, 2013
In the first regular session of 2011, the Indiana General Assembly made certain amendments to Article 9 of the Uniform Commercial Code (“UCC”), as enacted in Indiana under Ind. Code § 26-1-9.1-105 et seq. (all subsequent references to “§” numbers refer to the Indiana Code). These changes, which will take effect on July 1, 2013, were recommended to states generally by the Uniform Law Commission and the American Law Institute in the summer of 2010. Though the full text document reflecting the changes to Indiana law is available free of charge from the State of Indiana’s website, and we have provided a chart tracking each of the changes made, this article serves as a summary analysis of the changes to the UCC that will likely have the most wide-ranging impact on Indiana businesses.
By way of a brief preamble, Article 9 of the UCC addresses the law relating to the creation, perfection, and modification of security interests in collateral, as well as numerous other issues relating thereto. Although there were over sixty individual changes to the UCC as result of the 2011 Amendments, the most significant changes relate to the following areas: (i) definitional changes, including what it means to be a registered organization for purposes of the UCC; (ii) changes to how a debtor’s ‘name’ must be stated on a financing statement; and (iii), amendments relating to the way a debtor’s change in location is addressed.
Changes to Definitions:
Certificate of Title--§ 26-1-9.1-102(10)
This definition has been expanded to include other methods of recordkeeping for ownership of personal property that function similarly to certificates of title, but differ functionally. The primary purpose for this change is to include in the definition any record maintained by the government, particularly electronic records, which indicates the existence and priority of any security interest.
Registered Organization – § 26-1-9.1-102(71)
The definition of a “registered organization” has been changed to include any organization that is evidenced by a “public organic record”, which is a newly-defined term discussed below. This definition also now specifically includes any business trust, provided that such a trust’s public organic record has been filed with the state in which it purports to have been formed.
Public Organic Record--§ 26-1-9.1-102(68)
Throughout the UCC, reference was previously made to ‘public record’, particularly with respect to the records evidencing the formation of business entities. This has now been replaced with the more specific “public organic record”, the definition of which is a three-part disjunctive test. A public organic record is either, (i) the record filed with the state to form a business entity (i.e., articles of incorporation or articles of organization; (ii) formation documents filed with the state to form a business trust; or (iii) legislation (Federal or State) which causes the formation of an entity. This last item encompasses quasi-governmental agencies (housing authorities, public finance authorities, capital improvement boards, etc.), which previously did not precisely fit the definitions of a registered organization by way of their hybrid status between a state agency and a business.
Name of Debtor
The amendment that has the most overarching impact on both secured parties and debtors is the changes to how the name of a debtor is determined. Anyone searching the UCC filings to ascertain the existence, nature, amount, and scope of pre-existing liens on a debtor’s personal property does so by searching the State’s database, in Indiana maintained by the Secretary of State, under the debtor’s name. The method for determining a debtor’s name is, therefore, of fundamental importance, as typos, misspellings, or simply incorrect debtor names can lead to inaccurate searches and misinformed lending decisions.
§26-1-9.1-502(c)(3) has always required that a financing statement, in order for it to attach and create a valid security interest in a debtor’s property, must provide the name of the debtor. For individual debtors (i.e., not business entities), this particular section has been modified to state that it is sufficient to name a debtor by providing the “individual name” of the debtor or “the surname and first personal name of the debtor.” This section, however, must also be read in conjunction with §26-1-9.1-503(a)(4) and §26-1-9.1-503(g), which provide that an individual debtor’s name in a financing statement must, in order for that financing statement to attach, match the name which is on the debtor’s most recently issued driver’s license or identity card. If the debtor does not have a driver’s license or state-issued identity card, again, the individual name or surname and first personal name of the debtor are sufficient.
With respect to non-individual debtors, there are other changes. For organizational debtors, per §26-1-9.1-503(1), the debtor name must match that of the most recently filed public organic record of the state where the debtor was organized. For a probate estate, per §26-1-9.1-503(2), the name of the debtor must be the decedent’s name and the financing statement must indicate somewhere therein that the debtor is an estate. §26-1-9.1-503(3), in conjunction with §26-1-9.1-503(h), provides instruction as to how to state the debtor’s name where the debtor is a trust (this section is sufficiently detailed that it should be reviewed carefully before attempting to perfect a security interest in trust property).
With respect to changes of a debtor’s name, §26-1-9.1-507 retains the ‘seriously misleading’ standard from the prior version of the UCC, along with the 4 month window to amend the statement from the point at which the name in the financing statement was rendered seriously misleading as a result of the debtor’s name change. The only additions are for purposes of clarity and removal of ambiguity.
Location of Debtor
As different states have chosen slightly different changes and timelines of adoptions of these UCC amendments, there arises certain issues with respect to the applicable law when a debtor changes locations as between two different jurisdictions, §26-1-9.1-316 addresses which jurisdiction’s law will govern in the event of any such change in jurisdiction. A key substantive change is that collateral acquired by a debtor after it changes location is now covered by a security interest filed in debtor’s previously applicable location for up to four months, at which point, if the secured party has not filed a new financing statement in the new jurisdiction, the security interest becomes unperfected. This helps pre-existing secured parties where a debtor moves and acquires new property, but provides for some risk to new secured parties being primed for up to four months after a debtor moves by the pre-existing security interest filed by other secured parties in the prior jurisdiction.
§26-1-9.1-307, which describes how a debtor’s location for purposes of determining where to properly file the financing statement is determined, has also been modified at subsection (f)(2) to provide that, where a debtor has multiple branches or offices in different locations, the debtor’s location is, in addition to wherever it was organized, also wherever it has designated its main office, home office, or other comparable office to be. In other words, if an entity has filed its most recent articles of incorporation in Indiana, but has designated its main office in another state, under Indiana law, a financing statement filed in either Indiana or the other state would properly perfect a security interest in the debtor’s property.
Effective Date of Changes
§26-1-9.1-801(a) provides that the amended UCC, from July 1, 2013, will apply to any transaction within the scope of the UCC, even if entered into prior to that date. Subsection (b) of this section, however, notes that these changes will not affect any cause of action or proceeding initiated prior to July 1, 2013. If all the requirements of the new amendments are met by a pre-existing filing, that pre-existing filing remains effective after the amendment goes into effect per §26-1-9.1-802(a). If a security interest was perfected pursuant to the pre-existing UCC, but becomes ineffective due to the amendments, secured parties have one year from July 1, 2013 to amend their filings to conform to the amendments per §26-1-9.1-802(b). If a security interest is unperfected under the pre-existing UCC, but would result in perfection under the amendments, such a security interest is perfected as of July 1, 2013 per §26-1-9.1-803. Effective financing statements filed before the amendments take effect on July 1, 2013, continue their effectiveness until: if filed in Indiana, the time that the financing statement would have ceased to be effective had the amendments not been enacted; if filed in another jurisdiction, earlier of: (1) the time that the financing would have ceased to be effective under that jurisdiction's law, (2) July 30, 2018.
Per §26-1-9.1-804(c), continuation statements filed on or after July 1, 2013, are not effective to continue the effectiveness of a financing statement filed before July 1, 2013. However, if the continuation statement is filed in the same office as the financing statement that was filed before the amendments became effective, even when the continuation statement is filed on or after July 1, 2013, the effectiveness of the financing statement continues for any period as provided by the law of that jurisdiction.
Per §26-1-9.1-805(a), filing an initial financing statement in the office specified by the UCC continues the effectiveness of a financing statement filed before the amendments take effect (a pre-effective-date financing statement) if: (1) the initial financing statement would be effective to perfect a security interest under the amended UCC, (2) the prior financing statement was filed in an office in another state, and (3) the initial financing statement satisfies § 26-1-9.1-805(c ). An initial financing statement filed under § 26-1-9.1-805(a) continues the effectiveness of a pre-effective-date financing statement filed prior to the amendment's effective date, if the initial financing statement is filed before the amendments take effect on July 1, 2013, as provided in the pre-amendment § 26-1-9.1-515. An initial financing statement filed under § 26-1-9.1-805(a) continues the effectiveness of a pre-effective-date financing statement filed prior to the amendment's effective date, if the initial financing statement is filed after the amendments take effect on July 1, 2013, as provided in the amended § 26-1-9.1-515. For an initial financing statement filed under § 26-1-9.1-805(a) to be effective, it must: (1) meet the requirements of the amended UCC, (2) identify the pre-effective-date financing statement by the office in which it was filed, the filing date, and filing numbers of such (and the same for any continuation statements), and (3) indicate that the pre-effective-date financing statement remains effective.
§26-1-9.1-806(b) provides that, after the amendment's effective date of July 1, 2013, a person may alter, continue, or terminate pre-effective-date financing statements only as provided by the amended UCC and also notes that the law of the jurisdiction where the pre-effective-date financing statement may also terminate its effectiveness. Where Indiana law governs perfection of a security interest, information on a pre-effective-date financing statement may only be amended after July 1, 2013 if: (1) both the pre-effective-date financing statement and the amendment are filed in the office as specified in § 26-1-9.1-501, (2) an amendment is filed concurrently or after an initial financing statement that satisfies § 26-1-9.1-805(c ), and both are filed in the office required by the UCC, or (3) an initial financing statement provides the information as amended and satisfies § 26-1-9.1-805(c ) and is filed in the office as required by the UCC. Where Indiana law governs perfection of a security interest, the effectiveness of a pre-effective-date financing statement may only be continued as provided by the amended UCC. Whether or not Indiana law applies to the perfection of a security interest, pre-effective-date financing statements filed in Indiana may have their effectiveness terminated by filing a termination statement in the same office where it is filed after July 1, 2013, unless an initial financing statement that satisfies the amended UCC has been filed in the office as required by the amended UCC.
§ 26-1-9.1-807 grants authority to file an initial financing statement or a continuation statement if: (1) the secured party of record authorizes the filing, and (2) the filing is required by this chapter to continue the effectiveness of a pre-effective-date financing statement or to perfect or continue the perfection of a security interest.
However, all of the foregoing sections relating to pre- post- amendment effectiveness must be taken in light of §26-1-9.1-808, which provides that if the relative priorities of security interests were established before the amendments take effect in July of 2013, the pre-existing version of§26-1-9.1 will determine the priority.
This serves as a brief summary of the more fundamental changes to the UCC, as enacted in Indiana, to go into effect next year. Readers should review the complete chart of changes linked above before making assumption as to the effectiveness of any financing statements filed pursuant to these amendments.
These materials are intended for general informational purposes only. Accordingly, they should not be construed as legal advice or legal opinion on any specific facts or circumstances. Instead, you are urged to consult counsel on any specific legal questions you may have concerning your situation.
RUBIN & LEVIN, P.C. | 342 Massachusetts Avenue | Indianapolis, IN 46204 | www.rubin-levin.com