File a UCC When Purchasing Accounts ReceivableNCS Credit - July 14, 2017
If you are purchasing the accounts receivable of another entity, make sure to file a UCC-1!
If you are purchasing the accounts receivable of another entity, make sure to file a UCC-1. In fact, the authors of Six Things Every Purchase of US Commercial Accounts Receivable Should Know advise that, when purchasing accounts receivable, a UCC filing is “mandatory, not a precaution.”
“Pursuant to UCC Section 1-201(37), the term ’security interest‘ includes not only the interest of a lender secured by ’accounts‘ and ’payment intangibles‘ but also the interest of a buyer of those interests. In addition, UCC Section 9-109(a)(3) provides that Article 9 of the UCC specifically applies to ’a sale of accounts, chattel paper, payment intangibles or promissory notes.’ Together these two provisions serve to require that an outright buyer of a receivable, just like a lender taking a lien against such receivable, must file a UCC financing statement in order to perfect its ownership interest in such receivable.”
What happens if you (the buyer) don’t file a UCC? An unperfected security interest = unsecured creditor.
“The failure by a purchaser to file an appropriate UCC financing statement will generally result in such purchaser being ’unperfected” and treated as an unsecured creditor in any bankruptcy of the originator of the receivable....In addition, this will mean that the unperfected purchaser would typically lose in any priority contest with any properly perfected, secured creditor of the originator or, if the originator has fraudulently or accidentally sold the same receivable to another purchaser that is properly perfected, with any such competing purchaser.”
Prior to purchasing the receivable and filing the UCC, perform a search to confirm whether the collateral is encumbered.
“Because the UCC requires that any party claiming a lien or an ownership interest in a receivable file a UCC financing statement to be perfected, it is common practice in the United States for any prospective purchaser of receivables to conduct searches of the appropriate UCC filing records to determine whether the receivables it wishes to purchase are subject to any prior lien or ownership interests of other parties.”
As a best practice, once you have filed the UCC, perform a reflective search to verify the filing was recorded and indexed properly and to confirm your position.
It’s hard to believe we are nearly halfway through 2017! This week we recapped several statute changes from the first half of 2017.
Arkansas, Idaho, Indiana, Kansas, North Dakota, Oklahoma, Virginia, Washington & Nova Scotia have made changes this year. Read on to learn more!
Upcoming Educational Opportunities
7/25/17 @ 1:00 pm: Bond Claims and Public Construction
8/8/17 @ 1:00 pm: Collateral, UCC Proceeds, Commingled Goods and Accessions
8/15/17 @ 1:00 pm: Keeping Your Money: a Creditor’s Guide to Defending Preference Actions
8/22/17 @ 1:00 pm: Lien Foreclosure
8/29/17 @ 1:00pm: Secured Transactions in the U.S. and Canada
Bookmark our Calendar of Events page for up-to-date listing of all educational opportunities.