Perfection of Nonpossessory Security Interests Under Revised Aritcle 9: Consequences of the Practical and Conceptual Incompatibility of US and English Secured Transactions Law

Article 9 of the Uniform Commercial Code ("UCC"), governing secured transactions, was recently revised, changing the way in which nonpossessory security interests are perfected.1 All fifty states have approved the revision, which became effective in most states as of July 1, 2001. The changes affect foreign debtors differently depending upon whether their laws are compatible with revised Article 9. Given the sizeable amount of money that US banks loan to UK banks and corporations, English secured transactions law is particularly significant. This paper focuses on the incompatibility of English law with revised Article 9. The paper first examines the basics of where to file financing statements in order to perfect nonpossessory security interests under revised Article 9, contrasting the simplicity of determining the location of US debtors with the complexity of determining the location of foreign debtors. The paper then examines English law for compatibility with Article 9, because compatibility affects the method of determining the location of English debtors. Both practical incompatibility under current English law and possible conceptual incompatibility under future English law are considered. Finally, the paper highlights why filing must take place in the District of Columbia, notwithstanding the potential risks if a duplicate filing is not made in England. 1. DETERMINING DEBTOR LOCATION FOR PURPOSES OF FILING A FINANCING STATEMENT UNDER REVISED ARTICLE 9 An overview of the perfection of nonpossessory security interests under revised Article 9 is necessary in order to understand the added complications with foreign debtors. Most nonpossessory security interests are perfected by filing a financing statement in the location of the debtor.2 Registered US organizations are located in their state of registration. Foreign-registered organizations do not generally qualify for location based on state of registration because revised Article 9 requires that the state of registration be part of the United States.3 The foreign-registered debtor may possibly be located at its "chief executive office," but neither the original nor revised Article 9 defines this term.4 The case law pertaining to the original Article 9, which varies by jurisdiction, still applies in determining the location of the chief executive office of a foreign corporation.5 There are generally only one or two possibilities for the location of the chief executive office, even under the varying case law standards. If the foreign debtor's chief executive office always determined its location for filing purposes, the inquiry under the current case law would be relatively straightforward. The problem is that the foreign debtor is located in the place of its chief executive office only if the secured transactions laws of the foreign jurisdiction are equivalent to the Article 9 notice filing system.6 If the foreign law proves unsatisfactory, the financing statement must be filed in the District of Columbia for the security interest to be perfected under revised Article 9.(7) This necessitates an analysis of the secured transactions law of the foreign jurisdiction to determine if filing in the District of Columbia is required. II. PRACTICAL INCOMPATIBILITY OF ENGLISH LAW WITH REVISED ARTICLE 9 English law is incompatible with revised Article 9 because English law does not require notice filing of security interests. Article 9 generally requires the filing of financing statements to give notice of the creditor's specific nonpossessory security interests in the debtor's property. England does have a corporate secured transactions registration system, but the English system varies significantly from revised Article 9. The English corporate registration system is based on the registration of transactions rather than the filing of financing statements.8 Registration of transactions after the fact creates a risk that a subsequent creditor will not have adequate notice. …