This is the first installment in a series of columns which will discuss the changes to Article 9 that are scheduled to go into effect on July 1 of this year.

At the beginning of the year Rick Schadt wrote to ask if I would write an update column on Revised Article Nine of the UCC in anticipation of the changes taking place in July. Although I’m sure he has thought I had forgotten or was ignoring his request, the truth is I was waiting to see how the jurisdictions were going to implement the changes.

There is insufficient space to cover this subject in one column so I will address this subject over the next few columns.

The revised Act is to become effective in all U.S. jurisdictions on July 1, 2001. With less than six weeks to go, it appears unlikely that all states will be in compliance on that date. Presently only 30 states have adopted the revised Article 9. During the past month I have personally spoken to several staffers in the filing offices who have adopted the changes and have discovered that they have not been given any information or trained on the revised Article 9. Many of these staffers were unaware that the revisions were even posted on their states’ website.

The revised Act does not address any of the conflicts that may occur if both the old and new Article 9 is in effect after July 1. The only mention of this possibility is found in Section 9-701, where it is noted that “horrendous complications may arise” if any state has failed to adopt the revised Act.

Perfecting a Security Interest in Inventory

An example of “horrendous complication” can be found in perfecting a security interest in inventory. Under the present Act the proper place to file a security interest in the inventory of a corporation is where the inventory is located. After July 1, and under the revised Act, the place to file is the state in which the corporation is incorporated. If the state where the inventory is located and the state where the corporation is incorporated administer conflicting versions of the Act than it may require litigation in order to determine if in fact the creditor had a perfected security interest.

In upcoming columns we will discuss the formation and filing of security agreements and financing statements; signatures; where to file and type of liens covered under Article 9.

The information provided in this column is NOT LEGAL ADVICE and should not be taken as such. Legal advice should be obtained from a practicing attorney in good standing with the state bar association and preferably board certified in creditor law or a related practice.

I wish you well.