In 2010 the National Conference of Commissioners on Uniform State Laws and the American Law Institute proposed amendments to Article 9 of the Uniform Commercial Code, commonly referred to as the 2010 Amendments. During the 2012 legislative session, the North Carolina General Assembly considered and adopted the 2010 Amendments, effective on July 1, 2013. While not as extensive as the 1998 Amendments to Article 9, there are a number of critical changes contained in the 2010 Amendments that secured parties should be aware of.
Name of Debtor on Financing Statements
The most noteworthy changes contained in the 2010 Amendments clarify the method of determining the name of a debtor to be used on a financing statement. In many instances, the states were provided with two options to choose from – “Alternative A” and “Alternative B.” North Carolina, like most states, adopted Alternative A.
Individuals. Under Alternative A, when the debtor is an individual resident of North Carolina, the financing statement should reflect the debtor’s name exactly as shown on the debtor’s valid, unexpired North Carolina driver’s license or state issued special identification card. In instances where a debtor has more than one valid, unexpired North Carolina driver’s license and/or special identification card, the most recently issued license or identification card should be used. Secured parties should also be aware that the expiration of such driver’s license or identification card may result in the debtor’s name on the financing statement becoming seriously misleading and, therefore, may require an amendment to the financing statement to reflect the correct debtor name. As a result of these changes, secured parties should now obtain a copy of the valid, unexpired driver’s license or special identification card of the debtor and require the debtor to notify the secured party of any changes to or the expiration of such license or identification card.
Registered Organizations. When the debtor is a “registered organization” (e.g. a corporation, limited liability company, limited partnership, statutory or business trust organized under state law, etc.), the financing statement must contain the registered organization’s name exactly as provided in the public organic record most recently filed with the debtor’s jurisdiction of organization. In North Carolina, the “public organic record” would be the articles of organization (limited liability company), articles of incorporation (corporation) or articles of limited partnership (limited partnership) filed with the North Carolina Secretary of State. A secured party should always obtain a copy of the public organic record and should not rely on the debtor’s name as shown on the Secretary of State’s website, as this record may contain errors and will not constitute the public organic record.
Trusts. The 2010 Amendments distinguish between trusts that are registered organizations and those that are not. If the collateral is held by a trust that is a registered organization, the rules detailed above relating to registered organizations would determine the name used in the financing statement. If the collateral is held by a trust that is not a registered organization, then the following rules would apply:
- If the trust document specifies a name for the trust, the name of the trust should be used as the debtor’s name and the financing statement should indicate that the collateral is held in trust in a separate part of the financing statement; and
- If the trust document does not specify a name for the trust, the name of the settlor or testator should be used as the debtor’s name and the financing statement should provide in a separate part of the financing statement (1) that the collateral is held in trust, and (2) additional information sufficient to distinguish the trust from other trusts having the same settlor or testator (such as the date of the trust).
Along with the new changes to Article 9 come new financing statement and amendment forms. Among the changes to the new forms are the removal of the boxes to include the debtor’s organizational identification number, type of organization and jurisdiction of organization and the inclusion of a box to check if the collateral is held in a trust. Secured parties should not begin using the new forms until July 1, 2013.
The above changes are not the only changes contained in the 2010 Amendments, but represent some of the more significant modifications secured parties need to be aware of. Banks and other lenders will need to be sure their staff is familiar with these changes prior to July 1, 2013 to ensure their security interests are properly perfected.