the loan to ensure that the security
interests remain perfected – even
when there is no indication of any
issue in the borrower relationship.
◗ When authorizing termination
statements to be filed, transmit
completely prepared original paper
or electronic UCC- 3 termination
statements, rather than providing
a list of UCC- 1 financing statements
to a third party to be terminated.
◗ Regardless of what stage the
transaction is in, always use the
proverbial “second set of eyes” –for
particularly significant or high-dollar transactions. Proofread
all documents carefully. Confirm
debtor names against the official
state records and organizational
documents. Make sure that the collateral descriptions in the financing
statement and the security agreement are consistent and accurate,
that dates match up and that all
blanks have been filled in.
◗ If a lender finds itself in a position where its financing statement
has lapsed or been inadvertently
terminated, file a new financing
statement immediately. Cases like
Hickory Printing and Duckworth
make it clear that a mistaken
termination cannot be “corrected”
without judicial action, and that
“corrections” are much less complicated outside of bankruptcy. Contending with potential intervening
liens or avoidance actions is almost
always preferable to being deemed
As time-consuming and tiresome as
some of these safeguards may be, the
decisions discussed above make clear
that the additional time will be well-spent. Secured lenders should contemplate adopting such procedures to
ensure their filings are correct and to
check the accuracy of filings, particularly when their borrowers are in financial distress. Otherwise, they may
find themselves holding an unsecured
claim and likely unable to fully recover
from their borrowers in a bankruptcy
Mikel Bistrow is a partner, Brent Weisenberg is of counsel and Chrissey Barba
is an associate at Ballard Spahr LLP, a
national law firm based in Philadelphia,
with offices throughout the country.
1. In re Motors Liquidation Co., 486
B.R. 596, 647–48 (Bankr. S.D.N.Y.
2. In re Duckworth, Nos. 14-1561
and 14-1560, __ F.3d ___, 2014 WL
7686549, 1-3 (7th Cir. November 21,
3. 1st Source Bank v. Wilson Bank &
Trust, 735 F.3d 500, 503-04 (6th Cir.
4. In re C. W. Mining Co., 488 B.R. 715,
726-29 (D. Utah 2013).
5. In re Hickory Printing Group, Inc.,
479 B.R. 388, 396-405 (Bankr. W.D.
6. 11 U.S.C. §§ 547 and 550.
7. In re A.F. Evans Co., Inc., No. 09-
41727, 2009 WL 2821510, (Bankr.
N.D. Cal. July 14, 2009).
8. See In re Kitchin Equipment Co. of
Virginia, Inc., 960 F.2d 1242, 1245-
47 (4th Cir. 1992) and In re Pacific
Trencher & Equipment, Inc., 27 B.R.
167, 168 (B. A.P. 9th Cir. 1983), aff’d,
735 F.2d 362 (9th Cir. 1984).
9. In Pacific Trencher, both the
Bankruptcy Appellate Panel and
the Ninth Circuit emphasized
that “whether a filing statement
is ‘not seriously misleading’ does
not require that a creditor actually be misled. . . . It matters that a
potential creditor could have been
misled.” See Pacific Trencher, 735
F.2d at 364 (emphasis added); accord
27 B.R. at 169.
the UCC- 3 “seriously misleading”
and defeat a detailed description of
specific collateral to be released. 8
The GM and other decisions discussed
above should act as reminders to
lenders and their counsel of the risks
inherent in executing even the most
(seemingly) trivial aspects of secured
lending. With the potential costs of an
oversight made clear, lenders and their
counsel must focus on what they can do
to avoid finding themselves in the Term
Loan Administrative Agent’s and similar
◗ At the due diligence stage, consider
the nature of UCC form filing as
“notice filings.” Just as a financing
statement is intended to provide
notice of a creditor’s “potential
interest” in the collateral identified,
lenders should consider termination statements as notice of a “
potential termination” of the interest
covered by the original financing
statement. Conduct complete, thorough searches, with a careful review of all statements on record to
identify the collateral covered and
any “red flags” (such as termination
statements that include collateral
descriptions, or duplicative and
inconsistent checks in the “
termination” and “amendment” boxes) that
might indicate that the secured
party might continue to assert an
interest in the property. Regardless
of the merits of the prior lender’s
position, it is better to know up
front if there may be a dispute.
◗ Where multiple loans are secured
by the same collateral, consider filing multiple financing statements –
even if they rely on a single security
agreement. If the lender’s standard
loan documents do not already
include “dragnet” or “spreader”
clauses, consider inserting them.
◗ After closing, conduct an updated
lien search to confirm that all
financing statements, terminations,
releases and/or other amendments
have been filed properly. Conduct
periodic searches during the life of