During the question and answer period following a recent CLAS webinar, Common UCC Filing Mistakes and How to Avoid Them, an attendee asked a great question. She asked, “When a UCC is terminated, what happens when the UCC is then continued before its lapse date, does that continuation reinstate the UCC?”
In this blog post, we will tackle that question for the benefit of all our readers.
When reviewing UCC search results, if you see a UCC record that has a Termination filed and then a subsequently-filed Continuation, proceed with caution - there could be several different scenarios at work and further research will likely be necessary to determine the true status of the UCC.
In most cases, this situation is the result of poor record keeping by the secured party – essentially a case of the right hand not knowing what the left hand is doing - in which case, the Continuation does not have the power to revive a terminated UCC record.
Or, it could be a red flag that the Termination was fraudulently filed. A Termination is only effective if filed by a party with the authorization to do so. Usually that means the secured party, though in some cases the debtor has authority to file. If the debtor (or another creditor) filed the Termination without proper authority and then the secured party of record filed a Continuation, the Continuation would extend the term of effectiveness for the Financing Statement since the Termination was not valid. Best practice here would be to contact the secured party of record to determine if the Termination was filed with proper authority.
Lastly, take note if the UCC has more than one secured party listed. When a Termination is filed against a UCC record that has multiple secured parties, that Termination can mean two very different things:
- The Secured Party that filed the termination could be acting as a representative for all secured parties. In these instances, the filed termination would mean that every secured party associated with the UCC record has ceded their priority claim to the collateral – and the later-filed Continuation would not reinstate the UCC’s effectiveness.
- Or, the Secured Party that filed the termination may be relinquishing only its own interest in the collateral, in which case the UCC record would represent an enduring, effective claim for all other secured parties of record – and the Continuation would successfully extend the term of effectiveness as it relates to the remaining secured parties.
Interestingly, there is no place on the UCC3/Amendment form where a Secured Party can indicate if they are filing a termination in representative capacity or not. A wise course of action here would be to contact the Secured Party that filed the Termination to determine their intent.
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For informational purposes only; content does not constitute legal advice.