We have hired a new lawyer, Ian J. Platt, who comes to us with years of experience in not only equipment finance but other forms of asset-based lending. An introduction to Ian is elsewhere in this issue. As two of our lawyers are now members of the State Bar of Georgia, we are expanding our work both into that state and into other areas of corporate and commercial law.

We are in process of opening an Atlanta office. We will be located in downtown Atlanta, and ready to be hospitable when NAELB, NEFA and ELFA meetings come to town, as well as addressing the needs of clients in Georgia and surrounding environs.

We are sad to report that Bill Phillips has left the firm to pursue other opportunities. Bill will continue to handle litigation matters on which he is currently working with the client's consent.

All that business, together with the customary year-end closings, has kept us hopping. Now, as to your resolutions:

1. How about resolving to sit down and read your lease or EFA documentation? We have been suggesting this for quite some time and we have gotten a few calls from people who were surprised at what they found.

2. Have you taken a look at the licensing and usury laws of various states in which you have lessees and borrowers? While we hate to beat this drum again, it is obvious that many of our readers are still living in the twentieth century (did you ever think you would live to hear someone say that?), where equipment finance companies paid little or no attention to these laws.

a. Do you lease or finance motor vehicles?

b. Do you enter into leases or loans with an implicit or stated interest rate over 18%?

c. Do you offer micro ticket financings (under $25,000)?

3. When was the last time you sat down with your operations people and whatever closing checklist you use to ensure that best practices are understood and are being followed?

a. Are UCC's filed within 20 days after delivery of equipment to your lessee/borrower if you intend to rely on PMSI?

b. Do you send inventory notices out if the equipment is or is similar to equipment your lessee or borrower rents out and/or sells? Do you understand your exposure if your equipment is characterized as inventory?

c. Do you always get insurance certificates at closing and do they properly show you as additional insured/loss payee on the correct form?

A personal note, here's hoping that the coming year sees cooler heads prevailing and bringing us together as Americans. Please consider whether what you do or say helps or hurts in this effort. This goes equally for those who are pleased and those who are displeased with the election results. There is much work to be done to repair our economy for the good of all of us and it will be easier if we find a way to pull together. Who knows? Maybe the folks in Washington will follow our lead.

It is important for asset based lenders and other secured parties under the Uniform Commercial Code to know and use the correct names of their customer (or "debtor" in UCC terminology). While this is true for many reasons, the discussion below focuses on using the correct debtor's name in UCC financing statements, including some key principles and practical considerations.

First a little background. Under the UCC, a secured party ordinarily is required to perfect its security interest in inventory, equipment and various other types of personal property by filing an effective financing statement. One requirement to have an effective financing statement is that it "sufficiently" provide the name of the debtor This part of a financing transaction is critical, as insufficiently naming the debtor renders the financing statement ineffective to perfect the secured party's security interest in the applicable collateral. This is true even if there is an enforceable lease, equipment finance, loan, security or other agreement (putting aside the question of how potential debtor name inaccuracies may impact the agreement itself and other aspects of the transaction).

Corporations, limited liability companies and other registered organizations

The general rule is that the correct name of a debtor that is a corporation, limited liability company or other registered organization is the name included within its filed charter document (its "public organic record"), such as articles of incorporation or articles of organization. It is important to reference the most up to date version, in case of any name changes since the organization's creation. Often a secured party's typical practice includes checking a Secretary of State's website or other means of electronic searching and verification of registered organization names and other organization information. States also offer an ability to obtain some type of an "official" verification in the form of a certificate of good standing, certificate of existence or comparable document. Name verification as to these entities is usually very quick and accurate, but it is important to note that the only record on which a secured party can actually rely is the name listed on the public organic record (i.e., the filed articles of incorporation or organization). The secured party relying on anything less than the current public organic record is taking a modest risk - if the Secretary of State database is incorrect or out of date, a filing in the wrong name will be ineffective. In many states, a secured party can order a certified "long form" copy that includes both the initial formation documents and all amendments, which will ensure a secured party that it has the correct debtor name.

Unregistered organizations

Unlike the registered organization scenario, filing against the correct name can be much more challenging when the debtor is an unregistered organization, such as the classic situation of a general partnership that is formed without the need for registration. In that instance, the usual requirement is to provide "the organizational name" of the debtor if it has one, or in the absence of an organizational name, to provide the names of the partners comprising the debtor. That requirement can be difficult to meet in reality, particularly when state law may liberally recognize the existence of a general partnership without any formal documentation. A secured creditor may then be left with guesswork as to the true "name" of the partnership or its partners. Somewhat different rules apply for unregistered trusts and other unregistered organizations.

Individuals

For debtors who are individuals (which would include an individual acting as a sole proprietor), the correct name to use typically is the name listed on the individual's unexpired driver's license (if the person has one) or other specifically designated form of alternative identification. Some jurisdictions, however, allow use of the license/identification standard as a safe harbor rather than require it. If the individual has no qualifying license or other identification, then the correct name to use (or possible option in jurisdictions following the safe harbor approach) would be the person's "individual name" or the person's surname and first personal name. In that situation, the secured creditor still would want to take steps to verify the individual's name, which might include review of other government issued identification. These other steps are not fool proof, however, particularly if they may indicate different spellings or alternate "names" for the same individual.

Practical considerations

     1. Given the potential severe consequences of filing against an incorrect debtor name, the safe practice when there's doubt is to include alternate names/spellings on the financing statement as additional named debtors. While some states charge an extra fee to include additional debtor names, the relatively small amount will be money well spent if it avoids a potentially costly future fight with other creditors or a bankruptcy trustee. Thought also will need to be given as to possible changes in the underlying financing documentation.

     2. Certain inaccuracies will not make a listed debtor name incorrect for UCC perfection purposes so long as the name is not "seriously misleading," which generally means that a search of the correct name using the applicable UCC filing office's standard search logic would disclose the incorrectly listed name. This typically helps when there are variations in punctuation and other minor differences that are not a factor in a jurisdiction's standard search logic. It is important to note that states use different standard search criteria. "Acme, Inc." may or may not be differentiated from "Acme Corporation" or even "Acme Incorporated." "Jon Jones" may not be sufficient to perfect against "John Jones" or "Jonathan Jones."

     3. Debtor post-documentation name and other changes also can impact perfection, so it is important for secured creditors to consider up front appropriate ways to address the potential impact of changes. Steps would include ensuring financing documentation incorporates sufficient covenants and other protections, including a requirement that the debtor notify the secured party prior to or at least promptly after any name change, as well as following account maintenance and other operational procedures adapted to meet the needs of the particular financings involved.  

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