The Name of the Debtor UCC Financing Statements, Getting it Right

I recently read a legal note[1] about the proper description of the debtor on a UCC financing statement that raised alarm bells with me about the critical importance of the accurate completion of a UCC financing statement.

In re EDM Corp., 431 B.R. 459 (8^th Cir. 2010), the Eighth Circuit Court of Appeals, affirming a bankruptcy court decision, held that a filed UCC financing statement, which included both the debtor’s correct corporate name and a trade name in the name field of the financing statement, did not properly provide the name of the debtor as required by Article 9 of the UCC to perfect a security interest.

The bank made secured loans to EDM Corporation, a Nebraska corporation that did business as “EDM Equipment”.  On June 10, 2003, the bank filed an all-assets financing statement with the Secretary of State identifying the debtor as “EDM Corporation, D/B/A EDM Equipment.”  EDM later received additional financing from new lenders.  The subsequent lenders conducted UCC searches, using standard search logic, none of which revealed the bank financing statement.  The subsequent lenders made loans to EDM and filed their own UCC financing statements using the corporation’s correct legal name without the D/B/A trailer.

The Eighth Circuit focused its attention on the Nebraska UCC and the applicable comments.  Under §9-502(a)(1) of the Nebraska version of Article 9 of the UCC, a financing statement is sufficient “only if it . . . provides the name of the debtor.”  §9-503(a)(1) of Article 9 provides that for registered entities such as a corporation, limited liability company or limited partnership, a financing statement sufficiently provides the debtor’s name “only if” the name is the same as indicated on the public record of the debtor’s jurisdiction of organization.  This requires you to obtain and review a copy of the filed articles of incorporation (for a corporate debtor), filed articles of organization (for a limited liability company debtor), and a filed certificate of limited partnership (for a limited partnership debtor), in order to verify and use the exact legal name of the registered entity in the UCC financing statement.

The Eighth Circuit case emphasizes that the primary purpose of a financing statement, like other lien documents, is to put subsequent creditors on notice that a debtor’s property is encumbered, and that adding “doing business as” language in the debtor name field on the UCC financing statement frustrates that purpose because UCC search systems use a standard computerized search logic to locate a financing statement.  A search for the corporate name EDM Corporation will not be discovered using such standard search logic if the debtor field name also contains a “D/B/A” name. 

The official comments to §9-103 state that the actual individual or organizational name of the debtor on a financing statement is both necessary and sufficient, whether or not the financing statement provides trade or other names of the debtor.  Courts have interpreted these comments to mean that the name field of the debtor must only include the name of the debtor indicated on the public record of the debtor’s jurisdiction of organization.  If a filer wants to add a trade name or other names, such additional name must be added as other or additional names on a financing statement in the appropriate field on the financing statement, but not part of the debtor’s organizational name.

This is a reminder to all of us to be careful out there when filing financing statements, and only put the exact debtor name in the debtor box in a UCC financing statement.  In this case, less is better.

Authored by: James B. Gottlieb, Principal, Chuhak & Tecson, P.C.