Transition Issue Looms in Revised UCC Article 9

• Posted by Geoffrey G. Gussis on August 30th, 2005


• Filed in Corporate/M&A

Bingham McCutchen reports on a transition issue that may impact corporate counsel who work on financing transactions or who otherwise deal with UCC Article 9 issues on a regular basis:

"A transition issue under revised Article 9 of the Uniform Commercial Code may require special attention by our lender clients who make secured loans.

Revised Article 9, of course, went into effect in 46 states and the District of Columbia on July 1, 2001, and went into effect in the remaining states by January 1, 2002. Under the transition rules of revised Article 9, June 30, 2006, is an important date. That date is the outside date on which the effectiveness of financing statements filed under former Article 9 will lapse unless their effectiveness has been continued under the transition rules of revised Article 9.

This June 30, 2006, cut-off date for former Article 9 financing statements, created by revised UCC Section 9-705(c)(2), works very smoothly except for one scenario. That scenario is where a financing statement was originally filed in the second half of 1996 (or filed five or more years earlier and continued for a new five-year period beginning in the second half of 1996) and its effectiveness was continued by the filing of a continuation statement under former Article 9 early in the six-month continuation window in the first half of 2001 — before revised Article 9 went into effect. Under the rules of former Article 9 then in effect, the continuation statement would have continued the effectiveness of the financing statement to a date falling in the second half of 2006. Yet revised UCC Section 9-705(c)(2) provides that the outside lapse date for a former Article 9 financing statement is June 30, 2006 — i.e., at the end of the first half of 2006."

Link: Bingham McCutchen - United States - Transition Issue Looms in Revised UCC Article 9 from Mondaq (free registration required).