The New Amendments to UCC Article 9 in Minnesota

1. The New Amendments to UCC Article 9 in Minnesota Presented by: Paul Hodnefield Corporation Service Company

2. Presentation Outline • Background • Debtor Names • Forms • Transmitting Utilities • Transition Rules • Legislative Outlook • Q&A

3. Debtor Names

4. Registered Organizations • Current Law • A financing statement is sufficient if it provides the debtor name indicated on the public record that shows the debtor to have been organized. See § 336.9-503(a)(1). • Concerns • Article 9 does not define the term “public record.” • Many other public records include the purported name of an organization.

5. Registered Organizations • Example: • Name on Articles: • Name in State Business Entity Database: WROBLESKI, JOHN CONSTRUCTION, LLC

6. Registered Organization Solution • Redefine “Registered Organization” in § 336.9-102(a)(71). • An organization formed or organized solely under the law of a single state or the United States by the filing of a public organic record or the enactment of legislation. The term includes a business trust if a statute requires the organic record of the trust to be filed with the state. § 9-102(a)(68). • Define “Public Organic Record” in § 336.9-102(a)(68). • Record initially filed with or issued by a state or U.S. • Legislation which forms or organizes an organization. • Record of a business trust required to be filed by law. • Amended § 336.9-503(a)(1): • If the debtor is a registered organization, the financing statement is sufficient only if it provides the name stated to be the registered organization’s name on the public organic record most recently filed with or issued or enacted by the registered organization’s jurisdiction that purports to state, amend or restate the registered organization’s name.

7. New Registered Organization Effect • Source of Name • Clarifies that only the public organic record, including any amendments to that record, provides the only sufficient source of a registered organization name. • Changes to Best Practices • Registered organizations under current law: • No change. • New registered organizations:

8. New Registered Organizations • Entities Created By Legislation • Example: • The State Agricultural Society, Minn. Stat. § 37.01 (2010) • Best practices: • Obtain copy of the organic legislation that created the entity. • Entities Created By Government Charter • Example: • Farm credit banks, 12 USCS § 2011. • Best practices: • Obtain copy of the record issued to create the entity. • Business Trusts • Examples: • Minnesota Business Trust under Minn. Stat. § 318.01 (2010). • Delaware and Massachusetts business trusts. • Best practices: • Obtain copy of the organic filed with the state.

9. Business Trusts

10. Individual Debtors • Current Law • Financing statement is sufficient only if it provides the… individual name of the debtor See § 336.9-503(4). • Concerns • Article 9 offers no guidance to help a filer determine the correct name of an individual debtor. • Case law provides little guidance. • Secured parties left with uncertainty.

11. Individual Debtors • Proposed Solutions • Single Source (“Only If”) • Safe Harbor • Stakeholder Positions • JRC strongly preferred to do nothing or adopt Safe Harbor. • Bankers strongly supported “Only If.” • Drafting Committee Compromise • Offer “Only If” and Safe Harbor as legislative alternatives. • Minnesota selected “Only If” Alternative A.

12. New § 336.9-503(a)(4) • Sufficiency under “Alternative A” • Financing statement is sufficient only if it provides the name of the individual which is indicated on the driver’s license or identification card. • § 336.9-503(a)(5) Second Tier Safe Harbor if debtor lacks qualifying license or ID: • Surname & First Personal Name • Effect of New § 336.9-503(a)(4) • Only name on driver’s license or identification card will be sufficient unless debtor lacks current documents.

13. Driver’s License or ID

14. § 336.9-503(a)(4) Source & Sufficiency • License or ID Must Be Unexpired • Expired driver’s license or ID is not sufficient source of name. • License or ID Must Be Issued by “This State” • State where the law governs perfection and priority. • Only Name on License or ID is Sufficient • Name on license or ID is the correct debtor name for purposes of the financing statement. • Even if not the actual name of the debtor. • Multiple Licenses or IDs • Most recently issued record controls. • See new § 336.9-503(g).

15. SAMPLE GAYLE ELIZABETH Driver’s License Issues

16. License & ID Name Issues • Extraction of Name from License or ID • Name component order may not match. • Errors in Driver’s License or ID Name • Name with errors is the only sufficient name. • Debtor’s License or ID Issued by Other State • Debtor does not have records required for § 336.9-503(a)(4). Financing statement must provide surname and first personal name. See § 336.9-503(a)(5). • Second-Tier Safe Harbor • Applies only if the debtor lacks license and ID described in § 336.9-503(a)(4). • Effect of License or ID Changes: • Expiration or other events may cause a name change for purposes of § 336.9-507(c).

17. MARY ELLEN KAYE JOHNSON JOHNSON JOHNSON KAYE JOHNSON MARY MARY ELLEN MARY ELLEN KAYE KAYE ELLEN Driver’s License Issues

18. Driver’s License Errors BETH JOHNSON JOHNSON BETH

19. Driver’s License Errors KATHERINE ELIZABETH JOHNSO JOHNSO KATHERINE ELIZABETH

20. Driver’s License Errors MQRY KAY JOHNSON JOHNSON MQRY KAY

21. Driver’s License Errors MARY K JOHNSON, MD JOHNSON JOHNSON, MD MARY K

22. Individual Debtor Best Practices • Provide Name Indicated on License or ID • Exactly as listed on the license or ID. • Start today! • If No Qualifying License or ID • Provide surname (last name) and first personal name (first name). • Map Name Components to Correct Form Fields • Order does not necessarily correspond to form. • If in Doubt • Provide multiple forms of name as separate debtors. • Effect on Search Best Practices: • None. Continue to search for name variations.

23. Decedent’s Estate • Current Law: § 336.9-503(a)(2) • A financing statement is sufficient only if it provides the name of the decedent and indicates the debtor is an estate. • Drafting Committee Concerns • Filing errors under current law. • Decedent has no drivers license in states that enact Alternative A “Only If” approach. • “Decedent’s Estate” doesn’t really exist.

24. Decedent’s Estate • Drafting Approach • New § 336.9-503(a)(2) changes focus from identity of the debtor to whether collateral is being administered by a decedent’s personal representative. • Name of decedent and indication are still required. • Provides guidance for how to provide required indication. • Creates special safe harbor for name of the decedent. See new § 336.9-503(f). • Effect • Name and content requirements do not change. • Additional due diligence may be necessary to ensure name falls within § 336.9-503(f). • Form check box label will change.

25. Trust or Trustee • Current Law: § 336.9-503(a)(3) • A financing statement is sufficient only if it provides the name of the trust specified in its organic documents or, if no name is specified, the name of the settlor. • Financing statement must provide additional information to distinguish from other trusts with same settlors. • In the debtor’s name or otherwise indicate the debtor is a trust or trustee acting with respect to property held in trust. • Drafting Committee Concerns • Confusion & filing errors under current law. • This section should not apply to a registered organization. • Common law trust cannot be a debtor.

26. Collateral Held in a Trust • Drafting Approach – New § 336.9-503(a)(3) • Changes shift focus from identity of debtor to status of collateral. • Clarifies that this section applies to a testamentary trust. • Clarifies that indications and additional information must be provided somewhere other than the name field. • Effect • Name and content requirements generally do not change for a common law trust. • Form check boxes will be combined with a new text label.

27. Forms Statutory Safe Harbor Correction Statement

28. Approved Changes to Official Forms • Eliminate SSN/FEIN Field • Prevents filers from submitting records with debtor’s SSN when not required by law. • Eliminate Debtor Organization Info Fields • Delete organization information requirement from § 336.9-516(b)(5)(C). • Rearrange & Re-label Checkboxes • Indication check boxes move from Addendum to Financing Statement. • Termination checkbox moved away from Continuation on Amendment Form.

29. Approved Forms

30. Approved Forms

31. Correction Statement – § 336.9-518 • Background • Revised Article 9 eliminated the debtor signature requirements. • Correction Statement provided the debtor with a non-judicial remedy for the filing of unauthorized financing statements. • Effect of Amendments to § 336.9-518 • Changes name of record to “Information Statement”. • Authorizes the secured party to file the record • Official Comment clarifies that a secured party is under no obligation to file an information statement. • Corresponding Changes • § 336.9-516(b) incorporates the new “information statement” label for the record.

32. Transmitting Utilities

33. Transmitting Utilities • Duration & Effectiveness Under § 336.9-515(f) • …and a filed “financing statement” so indicates... • § 336.9-102(a)(39) definition of “financing statement” includes amendments. • Filing offices cannot amend debtor to become transmitting utility. • Amendment to § 336.9-515(f) • Adds “initial” before “financing statement.” • Clarifies that the indication can only be made on the initial financing statement, not an amendment.

34. New Article 9 Part 8 Transition Rules

35. Source of Part 8 Transition Rules • Key Provisions • Uniform effective date of July 1, 2013. • 5-year transition period ending June 30, 2018. • Return of the financing statement in lieu of continuation. • General Rule for Continued Effectiveness: • Filed records remain effective until earlier time of lapse or end of transition. See new Section 9-803.

36. Transition Effect on Filed Records • Debtor is Currently a Registered Organization • No transition action is necessary. • Debtor Becomes a Registered Organization • If change in governing law: • File Financing Statement In Lieu of Continuation. • May change standard for sufficiency of debtor name. • Amend name with UCC3 or on In Lieu, as appropriate. • Individual Names: • If filed financing statement debtor name does not match the individual debtor’s driver’s license, file amendment to add name that complies with new §336.9-503(a)(4) • Debtor is a Decedent’s Estate, Trust or Trustee: • No action may be required. • Debtor type Indications under current law remain sufficient under new § 336.9-805(e). • Consider filing amendment to add safe harbor name if applicable. • See new § 336.9-503(f) & (h).

37. Legislation

38. Enactments Through 9/12/2011

39. Resources • Official Text from the ULC • Visit: www.nccusl.org • Handout – Summary of Changes • Legislative & Jurisdiction Updates • CSC Global (www.cscglobal.com) • CSC Financial (www.cscfinancialonline.com) • Update email distribution list.

40. Q & A Paul Hodnefield Associate General Counsel Corporation Service Company 380 Jackson Street, Suite 700 St. Paul, MN 55101 800-927-9801, ext 2375 phodnefi@cscinfo.com This presentation is not intended to be legal advice. You should not act or rely on any information contained in this presentation without seeking the advice of an attorney.