Financing statements subject to transition under the revised Uniform Commercial Code may require a description of the collateral for the security interest at issue to remain perfected.
In Deusterhaus Fertilizer, Inc. v. Capital Crossing Bank (In re Deusterhaus Fertilizer, Inc.), 347 B.R. 646 (Bankr. C.D. Ill. 2006), the bankruptcy court assessed a secured party’s perfected status under the transition rules for Article 9 of the UCC. The court was faced with a secured party that had properly perfected its security interest under Article 9 as in effect prior to July 1, 2001.
However, after the secured party originally perfected its interest, the UCC was amended. Under the new law, the proper place for filing a financing statement in order to perfect a secured party’s interest in collateral was changed. In re Deusterhaus Fertilizer, Inc. resolved a dispute over whether the secured party properly complied with the applicable transition rules in order to maintain the perfection of its collateral interest.
As required by old Article 9, the secured party filed a financing statement that described the collateral in the state where the collateral was located. Such filing properly perfected the secured party’s interest. Upon adoption of the new Article 9 of the UCC (effective July 1, 2001), the secured party filed a new financing statement, in lieu of a continuation statement for the original financing statement filed under the old law.
The new financing statement described the debtor and was filed in the state in which the debtor was organized. Despite this proper recordation, the new financing statement did not have a description of collateral; it simply referenced the filing data for the old financing statement in its collateral reference.
The court concluded that the failure to include a description of the collateral in the new financing statement in lieu of a continuation statement failed to render the new financing statement valid under the new Article 9. As a result, the secured party became unperfected upon the expiration of the perfection period for the original financing statement.
The court specifically held that the transition rules under new Article 9 require that the new filing include a complete financing statement together with a description of the collateral.
This case raises substantial issues for secured lenders. In particular, it is important that secured lenders “recheck” financing statements that were filed in lieu of a continuation statement to confirm that such filings do, in fact, contain a specific identification of collateral. Absent inclusion of a description of the collateral, the new financing statement may not be effective and, therefore, the secured party could lose its perfection.