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Risk Management Blog

UCC & Corporate Due Diligence

Resource Guide for Legal and Financial Professionals

Is There Any Risk to a Lender Who Files Its UCC Statement After the Loan Closing?

UCC, Due Diligence, Reduce Financial Risk

Do you have UCC questions?  Attorney Bennett Cohen of Illinois law firm Cohen, Salk & Huvard, P.C., has the answers. Check out his guest post below. You may also want to check out his free eBook on RA9 Revisions to Individual Debtor Names.

Timely UCC Filing: Is there any risk to a lender who files its UCC statement after the loan closing?

Answer: Yes, the obvious risk is that an intervening lien (e.g., another UCC filing or a federal tax lien) can be filed or arise prior to the date of the lender’s UCC filing, thus impacting the lender’s priority position in the collateral. Another less well known risk is that if the lender’s UCC filing is made more than ten (10) days after the loan disbursement, and the borrower files bankruptcy within ninety (90) days after funding, the lender’s security interest or lien can be invalidated in the bankruptcy as a “voidable preference.”

Security Agreement for Pledged Securities Account: Does a lender need to obtain a separate security agreement in addition to obtaining a control agreement signed by the account owner/pledgor, the securities intermediary (brokerage house or bank where the pledged securities account is maintained) and the lender?

Answer: Yes. The control agreement serves to vest “control” of the pledged securities account in the lender, and is not intended to serve as a security agreement.

Control Agreement for Pledged Securities Account: Does the securities intermediary need to subordinate its security interest in the pledged securities account to the lender’s security interest in the pledged securities account?

Answer: Yes. The securities intermediary has an automatic first priority security interest in the pledged securities account by statute (Code Section 9-328), and should be required to subordinate its security interest in the control agreement.




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