In a recent bankruptcy court ruling, a creditor lost its security interest in the assets of a bankrupt company because it left two periods and one space out of its paper work. (A security interest is legal claim on collateral that has been pledged, usually to obtain a loan).
C. W. Mining Co. went into Chapter 11 bankruptcy owing Standard Industries for advance payments. In filing a required (UCC-1) financing statement, Standard spelled the name of the company as "CW Mining Company" rather than "C. W. Mining Company," leaving out the two periods and a space in the name.
The trustee of the bankrupt company sought to avoid the security interest of Standard. At trial, the director of the Utah agency that collects UCC-1 financing statements said that the search of its database could only retrieve exact name matches, which meant a search for "CW Mining Company" came up blank.
The bankruptcy court ruled that Standard did not have a security interest in the assets of the bankrupt mining company, citing the inability to retrieve the financing statement as proof that the financing statements were "seriously misleading."
On appeal, the district court agreed with the bankruptcy court, stating that Utah law requires that to secure a creditor's interest, the financing statement must provide the exact name of the debtor that appears in the public records.
All businesses should learn a lesson from this decision.
In recording the name of a debtor in financing documents, a creditor must make certain that every letter, space and punctuation mark conforms to the exact name of the debtor as registered in public documents.
The creditor may also consider having an attorney do a search of public records before filing to make sure the name and other information about the debtor is absolutely correct.
-- Christopher Smith Jr., Meyer, Unkovic & Scott, email@example.com
Business workshop is a weekly feature from experts offering tidbits on matters affecting business. To contribute, contact Business Editor Brian Hyslop at firstname.lastname@example.org.