There are a few central indexes that operate more like county recorder indexes—which can pose a problem for UCC Filers. Even though the Debtor name is not required on UCC-3 filings, indexes like the D.C. central index, Louisiana central index and Georgia’s Clerk’s Cooperative Authority cannot link UCC-3s to their “parent” financing statements without the inclusion of the Debtor’s name. Though not required, failure to include a reference to the Debtor’s name can result in a hidden UCC-3, unable to be found by searching parties.
Alerts
Database Searches Provide
Robust Due Diligence
In those jurisdictions where state search logic is strict, a certified or limited search is ideal for confirming that your UCC filing is in compliance with Article 9, but falls short of discovering hidden liens during the due diligence process. Capitol Service has a fix for that! We have identified several jurisdictions with restricted logic and are now offering an additional Database Search product that provides a better shot at finding mis-indexed or hidden liens.
Though Double Bubble was in the wrong when filing their financing statement, if the Secretary of State had mis-indexed the filing, the burden of discovering the hidden lien would have fallen squarely on the searcher’s shoulders. Additionally, ancillary liens like Federal and State tax liens might be found within the UCC index, but follow very different rules when it comes to the Debtor name.
Tell your CSR you’d like a Database Search with your next UCC search and we’ll help give you the most robust due-diligence product possible.
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.
Legislation Affects Entity Formation and Operation
Understanding each jurisdiction’s legislation as it relates to entity names is paramount for effective formation and operation of any business entity.
Florida passed amendments to its Fictitious Name Act, effective July 1, 2017. The act requires anyone doing business in Florida under a name other than the person’s legal name to register the fictitious name with the Division of Corporations of the Department of State. The amendments clarify the fictitious name registration process, by illuminating the documentation and information needed when registering a fictitious name, the time period for which a registration is valid, and the process for cancellation of the registration. Further, the legislation adds an exemption from registration for limited liability companies that already conduct business in a name that is licensed or registered and negates the need for a sworn statement when registering a fictitious name. Notably, limited partnerships, limited liability partnerships, limited liability limited partnerships, and limited liability companies should be careful when using certain words, abbreviations, and designations, as they may be prohibited unless the entity actually qualifies as that particular type of entity. Failure to comply with provisions under the Fictitious Name Act now constitutes a noncriminal violation, as opposed to the former classification of a misdemeanor. Finally, renewal of registration may be barred under certain conditions under the amendments.
Texas also passed legislation related to names of domestic and foreign entities, effective June 1, 2018. This legislation allows an entity or person to file a certified copy of a final judgment to establish the right to use the name in Texas. Names will need to be “distinguishable from” other names, instead of avoiding being “deceptively similar to” other names under the current version of the legislation. The “distinguishable from” standard will be expanded in its application to fictitious names under which foreign entities are registered. Formerly, names were only checked against names of existing filing entities, registered foreign filing entities, reserved names, and other registered names.
Online Notarizations Available in Five States
e-Notarization in Five States: What’s Next…Snapchat?
Texas recently passed HB 1217, joining Virginia, Montana, Ohio, and Nevada in allowing online electronic notarizations. The bill, to be effective January 1, 2018, allows for the commissioning of online notary publics and directs the secretary of state to develop rules to maintain electronic notarization standards. Online electronic notarizations will require the notary to verify the identity of a person creating an electronic signature at the time that the signature is taken by using two-way video and audio conference technology.
Identity may be verified by: (1) personal knowledge, or (2) remote presentation of a government-issued identification credential, credential analysis, and identity proofing. The bill limits online notarizations to documents, transactions, or signers that are tied to Texas. Examples include, but are not limited to, documents involving Texas real estate, documents that will be filed with a Texas court, and signers who are in the state at the time of the notarization. The online notary public must keep an electronic record of all electronic documents notarized for at least five years.
Did Your UCC Recording Hit the Mark?
Through their association, the International Association of Commercial Administrators, UCC filing officers spend significant time debating and sharing information about what may or may not trigger the rejection of a submitted financing statement in their state. Recently, there has been some debate regarding what constitutes a record. For example, when submitting a UCC form with multiple debtors, if one debtor’s identification is presented correctly but another’s is incomplete, will the filing office reject the document in its entirety, or will it reject part of the document?
For example, a mailing address for the debtor is required in all states. If I have provided an address for debtor #1, but not for debtor #2, what happens to my financing statement? There has yet to be consensus across the jurisdictions. Some argue that a record constitutes the information that is indexed – which could certainly be a portion of the submitted document. The risk here, however, is that the searchers reviewing filed copies of financing statements are likely to assume that the filing is effective for all debtors if the document was accepted and date-stamped. Best practices, as always, require filers to run searches to reflect on all debtors in order to confirm effective indexing for all.