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JULY
1, 2001
REVISED UCC ARTICLE 9: THE IMPORTANT DATE
Revised Article 9 of the Uniform Commercial Code improves secured
financing between creditors and debtors by allowing additional kinds
of property to serve as collateral, by simplifying the paperwork
for these transactions, by simplifying public notice that helps
avoid bankruptcy risk, and by providing fairer and more efficient
enforcement when a secured debt is in default. These benefits require
prompt and uniform enactment in every state, and the same effective
date in every state. Revised Article 9 has a prospective uniform
effective date of July 1, 2001, for all the states. It is very important
that each state adopt Revised Article 9 so that it will become effective
in that state on July 1, 2001, for the following reasons:
- Most secured creditors must file a financing statement identifying
collateral in a central office to fix a security interest's priority
in time versus other security interests.
- A major rule change in Revised Article 9 requires financing
statements to be filed in the state where the debtor is located
(generally its state of formation) rather than in the state in
which the collateral is found. The new rule promotes greater certainty
for secured creditors.
- 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.
- Revised Article 9 expands the types of collateral in which a
security interest may be taken. Not only will a creditor not know
with any certainty in which state to file a financing statement
for new kinds of collateral, that creditor will not know if a
security interest is effective at all if the collateral and debtor
are in different states with different laws, even if that creditor
files in both states. Again, costs will be increased.
- Even when the debtor and the collateral are in a state that
has adopted Revised Article 9, possible bankruptcy jurisdiction
in a state that has not adopted Revised Article 9 makes even perfection
of those security interests uncertain. A bankruptcy court in a
state that has not adopted Revised Article 9 may have the ability
to void the perfection that is valid in the state in which the
interest is perfected under Revised Article 9. This uncertainty
will also increase the cost of secured loans for all involved.
FOR THESE REASONS, EVERY STATE MUST ADOPT REVISED ARTICLE 9 OF
THE UNIFORM COMMERCIAL CODE BEFORE JULY 1, 2001, WITH THAT EFFECTIVE
DATE.
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