Lapsed UCC Filing Cannot Be Revived by a Continuation Statement
The importance of perfecting a security interest by filing a UCC-1 financing statement cannot be understated. Likewise, making sure the UCC-1 financing statement is accurate and has not lapsed is just as important. The case of Committee of Unsecured Creditors of Rancher’s Legacy Meat Co. v. Ratliff emphasizes the importance of ensuring that a UCC-1 financing statement is accurate and has not lapsed.
In Ratliff, James Ratliff provided loans to his business partner to form Unger Meat Company in 2010. Ratliff secured his loans through obtaining a security interest in Unger’s equipment, inventory, accounts receivable, furniture and fixtures. Ratliff perfected his security interest by filing a UCC-1 financing statement. On May 6, 2014 Unger changed its name to Rancher’s Legacy Meat Co. Ratliff failed to timely amend his UCC-1 financing statement to reflect the change in the company name and the UCC-1 financing statement lapsed. Even though Ratliff’s original UCC-1 filing lapsed, he filed two separate UCC-3 amendments in an attempt to protect his security interest.
In 2019, Ratliff began collection proceedings on his loans. Rancher’s Legacy Meat Co. filed for Chapter 11 bankruptcy in response to Ratliff’s attempt to collect on his loans. Ratliff asserted what he believed was priority in collection of his security interest. In response, the Committee of Unsecured Creditors argued that Ratliff did not have a valid security interest because his UCC-1 financing statement lapsed and so did his security interest. The Committee also argued that Ratliff’s subsequent UCC-3 amendments were invalid because they could not continue a security interest that no longer existed. The bankruptcy court agreed with the Committee, holding that Ratliff was an unsecured creditor and not entitled to adequate protection payments.
Ratliff emphasizes the importance of not only filing a UCC-1 financing statement to perfect a creditor’s security interest, but also making sure amendments are timely made so that the security interest does not lapse. If you require any help navigating UCC issues, feel free to contact any of our business attorneys.
