In preparing such payoff documents, Mayer Brown mistakenly prepared a Termination for the collateral securing the term loan. The mistaken Termination was discovered only after GM filed for bankruptcy protection in Delaware in Adversary proceedings followed in the bankruptcy case. The bankruptcy court found that the unpaid loan security interest had not been terminated and ordered GM to repay the term loan with interest, and GM complied in July The bankruptcy court decision was appealed to the Second Circuit.
The Second Circuit reversed the bankruptcy court and held that the term loan security interest had in fact been terminated when the mistaken Termination was filed. Thus, while the release was mistaken, it was still effective. Meanwhile, the Lenders brought a suit in the Northern District of Illinois for legal malpractice and negligent misrepresentation against Mayer Brown due to the filing of the mistaken Termination against the term loan collateral.
The Northern District court dismissed this case for failure to state a claim, holding that Mayer Brown did not owe a duty to plaintiffs, who are third-party non-clients. The discussion above makes it clear that actions, not intentions, govern Terminations and Continuations. Attempting to pass the buck for a mistaken filing will likely not be successful. Though it is harsh that the Lenders for the term loan lost such a huge amount of collateral, among the parties under the particular circumstances they were most culpable and must bear the burden of the mistaken Termination filing.
Parties involved in any secured transaction should be prepared to take extra steps in order to ensure their transactions comply with Article 9 of the UCC and the relevant interpretations of the same.
Practically, the effects of the forgoing discussions show that secured parties should implement procedures that include stronger attention to detail and provide oversight strategies to avoid mistakes. In conclusion, losing priority on a security interest due to problems with careless mistakes on UCC-3 Terminations or Continuations can be significantly detrimental to a secured party.
Early establishment of thorough and effective internal procedures and multiple levels of review can greatly reduce the chances of a costly mistake. The author also thanks Amy T. It is not intended to constitute legal advice and should not be relied upon as such. Initial Registration Statement means the initial Registration Statement filed pursuant to this Agreement. S-4 Registration Statement shall have the meaning set forth in Section 5.
Additional Registration Statement means a registration statement or registration statements of the Company filed under the Act covering any Additional Registrable Securities. The first Plan Supplement Filing Date shall be at least seven days prior to the Voting Deadline or such later date as may be approved by the Bankruptcy Court without further notice.
Initial Shelf Registration Statement has the meaning set forth in Section 2 a hereof. Registration Statements means the Initial Registration Statement and the additional registration statement as proposed to be filed or as proposed to be amended by the post-effective amendment to be filed shortly prior to its Effective Time, and iii "Prospectus" shall mean the prospectus included in the Registration Statements.
Pre-Closing Statement has the meaning set forth in Section 2. Resale Shelf Registration Statement shall have the meaning set forth in Section 2. Subsequent Shelf Registration Statement has the meaning set forth in Section 2 b hereof. Failure to include an appropriate filing fee.
What information is required for a UCC-3 filing? The required information is: An acknowledgement name and address. Recommended for return copy of the filing. The file number of the original financing statement. Current record information box 6 of the debtor on the initial financing statement. Recommended Name of the secured party on the initial financing statement. However, it is important to note that for a UCC1 filing a termination is only an amendment and that the UCC1 filing may be amended further, even after a termination has been filed.
Within the last 6 months that the filing is active, it may be continued for another five years. However, the continuation amendment MUST be filed within the 6 month window before the lien lapses. Box 4 — Assignment — This is an assignment of interest to another secured party. Sometimes this is used to assign certain portions of collateral to specific secured parties.
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