In his recent Pratt’s Journal of Bankruptcy Law article, “Further Developments in UCC Financing Statements: Collateral Descriptions,” Kutak Rock partner Bruce Wilson provides updates to his previous article that addressed two similar cases of first impression under Article 9 of the Uniform Commercial Code. The courts in both In re The Financial Oversight and Management Board for Puerto Rico, 914 F.3d 694 (1st Cir. 2019) (“ERS”), and In re 180 Equipment, LLC, 591 B.R. 353 (Bankr. C.D. Ill. 2018), held that UCC-1 financing statements describing collateral solely by referring to the applicable security agreement contained an insufficient collateral description and thus failed to perfect a secured party’s security interest.  Accordingly, based on such rulings, the security interests of the secured parties were avoidable in the bankruptcy cases of the related debtors.  

The decision of the United States Bankruptcy Court for the Central District of Illinois in the In re 180 Equipment, LLC case was subsequently appealed to the United States Court of Appeals for the Seventh Circuit.  After acknowledging that the case “presents a matter of first impression for our court,” the Seventh Circuit reversed the decision of the bankruptcy court and found the UCC-1 financing statement at issue contained a sufficient description of the related collateral. In re 180 Equipment, LLC, 2019 WL 4296751 (7th Cir. Sept. 11, 2019) (“180 Equipment”).

As explored in his previous article, neither the ERS case nor the 180 Equipment case defined the scope of, or held that searchers do not have, a duty of inquiry.  The effect of the Seventh Circuit’s holding in the 180 Equipment case is to effectively retain, and possibly expand, the obligation of UCC searchers in instances with ambiguous collateral descriptions to investigate the nature of collateral granted by a debtor to a prior secured party.  This investigation may include direct contacts with a prior secured party and obtaining a copy of the related security agreement.

With more than 30 years of experience, Bruce Wilson focuses his practice on bankruptcy, workout, and UCC matters, including structuring new transactions, securitizations and bond financings, resolving disputes in troubled transactions and workouts, and enforcing remedies.

Article: Further Developments in UCC Financing Statements: Collateral Descriptions