by JPMorgan. In connection with the
closing of each facility, JPMorgan properly
perfected its security interest by filing UCC
financing statements against GM.
In October of 2008, GM repaid the
synthetic lease facility in full and entered
into a termination agreement pursuant to
which JPMorgan authorized GM to terminate any UCC financing statements related
to the synthetic lease facility. However,
GM’s attorneys mistakenly prepared and
filed a UCC termination statement that
erroneously listed the filing number of the
UCC financing statement related to the
term loan facility. In other words, GM’s
attorneys mistakenly terminated the UCC
financing statement for the term loan
facility. This error was not discovered until
June 2009, shortly after GM filed its Chapter
11 bankruptcy case.
In connection with its Chapter 11 bankruptcy case, GM repaid the term loan in
full with the proceeds of a court-approved
debtor-in-possession financing facility.
Upon learning that the UCC financing
statement related to the term loan was
terminated before GM filed for bankruptcy,
the Official Committee of Unsecured Creditors filed a complaint seeking to recover
from JPMorgan the proceeds used to repay
the term loan.
All parties, including the Committee,
conceded that GM and JPMorgan did
not intend to terminate the UCC financing statement related to the term loan.
However, the Committee argued that the
UCC termination statement, although mistakenly filed, was nevertheless effective
to terminate the UCC financing statement
related to the term loan. Assuming, as the
Committee argued, that the mistakenly
filed UCC termination statement was effective to terminate JPMorgan’s UCC financing
statement related to the term loan, JPMorgan would have been unperfected as of the
petition date and, therefore, the entire $1.5
billion term loan would have been reclassi-fied as an unsecured claim.
The Bankruptcy Court ruled against the
Committee and granted summary judg-
ment in favor of JPMorgan. Under Section
9-510 of the Uniform Commercial Code, a
UCC termination statement is only effec-
tive to the extent it is authorized by the
secured party of record. Conversely, if the
secured party did not authorize the filing,
the termination statement is ineffective.
As such, the question before the Bank-
ruptcy Court was whether JPMorgan had
authorized the filing of the UCC termina-
tion statement related to the term loan.