“ALL ASSETS” IS THE KEY WHEN DRAFTING UCC-1 FINANCING STATEMENT

COLLATERAL DESCRIPTIONS
January 30, 2017
Commercial Finance Association Blog
Even when prepared by outside or in-house counsel, many lenders pay close attention to draft
UCC financing statements before they are filed, and rightfully so. A recent case decided shortly
before the end of 2016 highlights an important practical lesson about what words should be
included in a UCC financing statement’s collateral description and why.
The Second Circuit Court of Appeals (which includes New York courts), recently affirmed that
by using the key words “all assets” in a UCC financing statement, a secured creditor can perfect
its security interest even if other information that follows the “all assets” language is incorrect.
The Facts
A national bank made a $1 million loan secured by all assets of the borrower. The bank’s UCC
financing statement described the collateral as:
“all asset of the Debtor, including, but not limited to, any and all equipment, fixtures, inventory .
. . now owned or hereafter acquired by the Debtor and located at or relating to the operation of
the premises at 100 River Rock Road . . . .” [Emphases added.]
When the borrower moved locations seven years later, the bank amended box 2c of its financing
statement (the “Debtor’s mailing address” box) to indicate the borrower’s new address as 6030
N. Bailey Ave. However, the bank failed to amend Box 4 as well, the description of the
collateral, which continued to say, “and located at or relating to the operation of the premises at
100 River Rock Road,” the original address.
Subsequently, the borrower filed for bankruptcy. Less than 90 days thereafter, the bank filed an
amended financing statement describing the collateral in box 4c as “and located at or relating to
the operation of the premises at 6030 N. Bailey Ave,” the new address. The bankruptcy trustee
sought to set aside the security interest as being unperfected after the debtor moved.
The parties agree that the bank’s UCC financing statement amendment filed within 90 days of
the bankruptcy petition, did not and could not have perfected the bank’s security interests
because it would have been a voidable preference under Section 547 of the bankruptcy
code. The only dispute left before the court was whether the initial collateral description in the
initial UCC financing statement was sufficient to continue to perfect the bank’s security interest
after the borrower moved.
The Court’s Holding
The bankruptcy judge ruled in favor of the bank, concluding that the original financing statement
sufficiently described the collateral. The district court affirmed, as did the Second Circuit in a
non-precedential summary order on December 22, 2016 (In re: Sterling United, Inc.)
Despite the improper address, the Second Circuit held that the collateral description was
“sufficient because it unambiguously refers to ‘all assets of the Debtor’ irrespective of their
location.” All of the language following the phrase “including, but not limited to” was
superfluous. Citing authority, the Second Circuit said that using “including, but not limited to”
made the detailed description that followed “illustrative rather than exhaustive.”
The Takeaway
A collateral description in box 4 that states “all assets of the Debtor” is bulletproof. Many
lenders, attorneys and paralegals may, as a matter of personal preference, like to include a list of
types of collateral and other details just like the bank did in this case by starting off that list with
“including but not limited to…” Doing so is fine as long as the entire collateral description in
box 4 starts by indicating that the collateral is “all assets of the Debtor.” Anything that follows
the phrase “including but not limited to…” is seen by the courts as nothing more than a non-
exhaustive list of examples.
“‘All Assets’ is the Key When Drafting UCC-1 Financing Statement Collateral
Descriptions,” by Jason I. Miller was published in the Commercial Finance Association
Blog on January 30, 2017. To read the article online, please click here.