Security interest law concerns security interests in personal property rather than real property. The law is generally known as UCC 9, or the Uniform Commercial Code section 9. We find the statute at Alaska Statute 45.29.101-709. Alaska recently adopted the 2010 changes to the security interest law. The law is effective for security interests after July 1, 2013.
The law instituted significant changes between the old recording rules and the new rules. The impact of not recording your security interests may mean that you can’t collect your debt if the debtor becomes bankrupt.
What you need to record a lien.
You must give value to a debtor. The debtor must have rights in the collateral. The Debtor must give an acknowledged security agreement to you.
Properly Recording Perfects the Lien.
Properly recording the security interest provides notice to the world of your rights and perfects your interest. The new rule changes substantially change the recording rules.
Account Debtors Must Comply With Notice of Debt Assignment
The statute includes new provisions that need debtors to pay the assignee of a debt rather than the original creditor. A debtor’s failure to pay the assignee after notice of an assignment leaves the debtor liable to pay twice.
Filing Financing Statements
You will still use form UCC-1 to file the financing statement. In most circumstances you will only need to file a single document and not multiple documents in several jurisdictions. You don’t need to get the debtor’s signature on the financing statement to file the document. You also don’t need to have the organization’s ID or the form of their entity. If the proper filing place is in Alaska you can file online here.
Foreclosure After Default
You can still engage in self-help repossession of property as long as you can go ahead without breaching the peace. You can also start a judicial foreclosure. There are also still the rights of proceeding with a strict foreclosure.
Substance over Form
The statute will apply to transactions, even if you word your agreement in a way to try and escape the statute. The bankruptcy court is likely to consider whether there is an obligation and whether it is secured by collateral. For example, the sale of Accounts can still be considered simply a UCC 9 security agreement transaction. The risks of not recording the financing statement are that someone else may claim priority over you or a bankruptcy judge could rule that you are not perfected and therefore not collateralized. Similarly transactions where you keep title may be treated as a security interest, requiring perfection. It also applies to consignments, sales of intangibles, sales of promissory notes and accounts.
The New Location Rules
Where you record the financing statement depends on the debtor. The debtors place determines the choice of law and the place of filing. Registered organizations must be recorded at the place where they are organized. Alaska companies in Alaska. Delaware companies in Delaware. Individual debtors in the state of their residence. Other entities at the chief executive office.
Foreign Debtors are recorded in their own country, if their laws are like our UCC9; otherwise, you will need to record in Washington DC. For all Canadian provinces, except Quebec you would file in Canada. For other countries you can take a look at Prof. Arnold S. Rosenberg’s work at Thomas Jefferson School of Law here.
Other Means of Perfection
There are other means of perfection such as control or automatic perfection. The control generally concern accounts, such as deposits, investments, electronic chattel paper and letters of credit.
Recording your Financing Statements
The financing statement lasts for six years without a continuation. When you search the state records you do not know whether the recorded documents were actually authorized. They are based solely on the name of the debtor as typed by the submitting party. All financing statement once recorded stay in the system, even if they have been terminated. If the financing statement has been wrongfully terminated your interest may be subject to the existing claims. Accordingly, reviewing the state documents is merely the start of your due diligence.
Debtor Name Trap
Many people working for companies don’t actually know what the official name for their business is as recorded in the State’s records. If you simply take your debtor’s word for the name of the enterprise, it is likely the name will be incorrect and that could leave you unsecured. It is a best practice to get a copy of the record recorded with the state. You want the name from the articles of incorporation. When the debtor is an individual you want to use their name as typed on their current drivers license issued by the State of Alaska.
For more information on the changes to Alaska UCC 9 give us a call.