National Conference of Commissioners on Uniform State Laws

211 E. Ontario St., Suite 1300, Chicago, IL 60611
tel 312-915-0195, fax 312-915-0187

For Immediate Release

REPORT NOW AVAILABLE ANALYZING CHOICE OF LAW ISSUES FOR STATES THAT WILL NOT HAVE REVISED UCC ARTICLE 9 IN EFFECT BY JULY 1, 2001

June 15, 2001—Article 9 of the Uniform Commercial Code (UCC) has governed the mechanics of granting secured credit and enforcing secured creditors' rights in the U.S. for four decades. Now, a major revision of Article 9, drafted and approved by the American Law Institute (ALI) and the National Conference of Commissioners on Uniform State Laws (NCCUSL), is set to take effect in nearly every state on July 1, 2001.

Currently, 47 states plus the District of Columbia have enacted Revised UCC Article 9 (five states are still awaiting the Governor's signature). Only Massachusetts, New Jersey and New York have yet to enact UCC9. Of the 47 enacting states, Alabama, Florida and Mississippi have effective dates of January 1, 2002, while Connecticut has an effective date of October 1, 2001. This means that while Revised UCC9 will be in effect on July 1 in nearly every state, there will not be total uniformity. The consequences will be serious.

The Permanent Editorial Board for the Uniform Commercial Code, working on behalf of the ALI and the NCCUSL, has just issued a report analyzing the impending problems. It will be essential reading for secured creditors, and commercial lawyers attempting to deal with the choice-of-law problem. The report is now available online at www.nccusl.org or www.ali.org. Copies of the report are also available from NCCUSL headquarters at 312-915-0195.

Article 9 provides a set of rules that govern any transaction, other than a finance lease, that involves the granting of credit coupled with a creditor's interest in a debtor's personal property. If the debtor defaults, the creditor may possess and sell the property (generally called collateral) to satisfy the debt. The creditor's interest is called a security interest. Perfection of the creditor's security interest establishes the creditor's priority over other creditors. The usual method for perfecting a security interest is to file a "financing statement" in the appropriate filing office. This notifies subsequent creditors of the existing security interest.

Any state in which Revised Article 9 is not effective on July 1, 2001, will confuse creditors. If collateral and debtors are in different states, some with the old Article 9 and some with Revised Article 9, a secured creditor will not know exactly where to file effective financing statements. The secured creditor will be forced to file in all states in which collateral may be located at any time, plus the state in which the debtor is located. Creditors will be unsure which of these filings will, in fact, establish priority with respect to the collateral. This will increase the cost of transactions and credit for borrowers in states that have not adopted Revised Article 9 effective July 1, 2001.

The National Conference of Commissioners on Uniform State Laws is now in its 110th year. The organization comprises more than 300 lawyers, judges, and law professors, appointed by the states as well as the District of Columbia, Puerto Rico, and the US Virgin Islands, to draft proposals for uniform and model laws and work toward their enactment in their legislatures. For further information, please contact John McCabe or Katie Robinson at 312-915-0195, or Gabrielle Bamberger at 212-333-5222.