Change Proposed to Massachusetts UCC Standard Search Logic

Certain Filed Financing Statements Will Become Seriously Misleading

The UCC Division of the Massachusetts Secretary of the Commonwealth plans to seek comment on a proposed rule change to its UCC standard search logic (“SSL”).  The proposed change may render some currently effective financing statements seriously misleading.   If adopted following the comment period, the revised search logic will no longer disregard ending “noise words” (“noise words” are words, phrases, or abbreviations at the end of an organization name that indicate the existence or nature of the organization.  Examples of “noise words” include Corporation, LLC, and Limited Partnership). 

This proposed change affects filed financing statements that are only effective under UCC Section 9-506(c).  It does not have any impact on best search practices, nor will the filing office unofficial “starts with” search logic change.

The proposed search logic change will affect filed financing statements that provide debtor names with minor errors in the ending noise words.  A debtor name with errors in the ending noise words will not comply with Section 9-503(a).  Section 9-506(b) provides that a debtor name that fails to comply with Section 9-503(a) makes the financing statement seriously misleading.  However, under Section 9-506(c), if a search under the debtor’s correct name, using the filing office’s standard search logic, would disclose the record, the incorrect debtor name does not make the financing statement seriously misleading.  Thus, the sufficiency of a debtor name that provides an incorrect ending noise word depends entirely on the search logic.

Today, a debtor name provided as “ABC, INC.” would not make a financing statement filed with the Massachusetts Secretary of the Commonwealth seriously misleading if the correct debtor name was “ABC CORPORATION.”  The current SSL would find the name with the incorrect noise word because it disregards the endings “INC” and “CORPORATION” in each name.  Therefore, Section 9-506(c) prevents the error in the filed debtor name from making the financing statement seriously misleading.

The Massachusetts Secretary of the Commonwealth plans to implement the new SSL upon adoption of the proposed rules.  At that point, the SSL will no longer disclose “ABC, INC.” on a search of the correct name “ABC CORPORATION.”  Any filed financing statement that provides a debtor name with incorrect ending noise words would become seriously misleading.  Secured parties that relied on SSL for sufficiency of the financing statement may find themselves unperfected.  

Secured parties can take three actions now to reduce the risk of becoming unperfected when and if the new search logic goes into effect.  First, the secured party should identify any financing statements they have filed with the Massachusetts Secretary of the Commonwealth that contain incorrect organization debtor name ending noise words.  Second, the secured party should order a certified search on the correct name of the debtor to ensure the record is currently sufficient under Section 9-506(c).  The certified search uses the filing office SSL and will serve as evidence that the name provided did not make the financing statement seriously misleading prior to the SSL change.  Finally, the secured party must file an amendment to add the correct debtor name.

For more information please contact Paul Hodnefield, Associate General Counsel for Corporation Service Company, at phodnefi@cscinfo.com, or 800-927-9801, ext. 2375.

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CSC® Media

New titles from CSC® Media: The 2010 Edition of Illinois Laws Governing Business Entities and California Laws Governing Business Entities.

CSC® Media, in collaboration with LexisNexis® Matthew Bender®, is pleased to announce the February release of the 2010 Edition of Illinois Laws Governing Business Entities. This resource is the most comprehensive collection of annotated Illinois business entity statutes available.

The 2010 Edition is updated through Public Act 96-857 and features over 50 statutory changes. Notable changes from the 2009 legislative session include: Establishment of the low-profit limited liability company (or L3C); wide-ranging amendments to the General Not for Profit Corporation Act; and the creation of the Uniform Prudent Management of Institutional Funds Act.

Coverage of recent case law includes 35 new case annotations from state and federal court decisions and five full-text cases, including Denmar Builders (piercing the corporate veil of an LLC) and Brynwood (evaluation of dissenting shareholder’s shares).

The companion CD-ROM contains the full text of the selected cases, as well as over 100 fillable PDF forms for incorporation/formation, qualification, mergers, dissolution, and name reservation for all entity types in Illinois.

California Laws Governing Business Entities

CSC also recently released the 2010 Edition of California Laws Governing Business Entities. This resource is the most comprehensive collection of California business entity statutes and the only case-annotated deskbook available for the state.

The 2010 Edition reflects legislative changes through the Seventh Extraordinary Session of the 2009 Legislature, featuring over 90 amendments to the Corporations Code, as well as significant changes to the taxation and unclaimed property provisions.

Changes were made throughout the Corporation Code, including wide-ranging conforming amendments designed to update the Code to reflect recent developments in federal bankruptcy and securities law.  In addition, the Legislature made significant, substantive changes to the provisions of the Nonprofit Corporation Law and the Consumer Cooperative Corporation.

Changes are listed in the book’s Table of Sections Affected, while blackline notes indicate the effects of the 2009 amendments. The notes allow readers to quickly ascertain where language has been changed or deleted. The book also contains in-depth analyses of the statutory revisions and their significance.

The 2010 Edition of California Laws Governing Business Entities includes over 140 new case annotations from Courts of Appeal and Supreme Court decisions, as well as from federal court decisions interpreting California law. A Table of New Annotations allows readers to quickly identify the entries that have been added since the last edition. New annotations are also clearly marked with a gray bar in the pages of the book.

Also in this edition are the full texts of recent, significant California opinions, including Yamaha, concerning service of process on a foreign corporation, and In re FairWageLaw, concerning the due process rights of a dissenting shareholder in a voluntary dissolution action.

The CD-ROM also contains nearly 300 forms for incorporation/formation, qualification, mergers, dissolution, and name reservation for all entity types. A listing of forms and contact information for California’s Secretary of State can be found in the book’s appendix.