A Burst Bubble

Broad Search Logic Avoids Surprises

A recent UCC case has become a sobering reminder that though it’s imperative to get the Debtor’s name right when filing a financing statement, errors are inevitable. As a searcher, enhancing your due diligence and accessing resources to provide expanded search results can prepare you for what could otherwise be a big surprise at a bankruptcy hearing.

In 2012, Secured Party “Double Bubble” took a security interest in assets owned by Debtor “ISC, Inc.” In filing its financing statement, however, Double Bubble erred and put a space between the “c” and the period in “Inc .” Though more strict than most state published search logic, Wisconsin’s Department of Financial Institutions did not disclose Double Bubble’s lien when a search was run using the correct name: ISC, Inc. The space between the “c” and the period resulted in a hidden lien. Double Bubble argued that a diligent searcher would have accessed the broader search option available on the state’s website. Since Revised Article 9 was enacted, however, the diligent searcher standard has been replaced with something much stricter in most jurisdictions: the filer must get the name right, exactly right, every time to avoid a strict search logic that would otherwise render the UCC hidden and ineffective.

Though “good” case law prevailed here and upheld the statute, an uninformed prior secured creditor would have been blindsided at this hearing had they not had prior knowledge of the lien. Casting a wide net and using broad search logic within the due-diligence process has its merit.