Recent Changes to Article 9 of the Uniform Commercial Code in New Jersey
Effective May 11, 2015, the New Jersey Legislature amended certain provisions of the New Jersey Uniform Commercial Code (“UCC”). The amendments apply to all financing statements filed on or after May 11, 2015 and, among other things, require additional language to be included in all financing statements and grant the filing office broader authority to reject financing statements. The object of the amendments is to combat and deter the filing of fraudulent financing statements.
The Legislature explained that it had “become increasingly common for financing statements to be filed fraudulently as retaliatory measures meant to harass individuals.”1 Accordingly, the filing office may now refuse to accept a filing because, among other reasons, “the collateral described in the record is not within the scope of” Article 9 of the UCC, “the filer is incarcerated,” the office “reasonably believes that the filer is attempting to file under a fictitious name with the intent to harass or defraud the person identified as the debtor,” or the office “reasonably believes that the record is materially false or fraudulent because . . . the record asserts a claim against a current or former officer or employee of any federal, state, county, or other local governmental unit.”2
We note that the expanded authority of the filing office to refuse to accept a record for filing on various grounds does not, however, apply to a “registered organization” under the statute (i.e., a corporation, limited liability company or other entity formed or organized by the filing and issuance of a public record with and by any state).3 Additionally, as the statute previously provided, a statutorily proper filing that is submitted with the appropriate fee, but which the filing office erroneously refuses to accept, is still effective, except against a purchaser of the collateral for value who reasonably relied upon the absence of a financing statement.4
Importantly, however, the amendments now require additional language to describe the collateral covered by a financing statement. Generally, obtaining and perfecting a security interest on most items of personal property requires (i) a security agreement signed by both the debtor and the secured party which includes a description of collateral that meets the requirements of N.J.S.A. § 12A:9-108 (Sufficiency of description), and (ii) the filing of a financing statement that meets the requirements of N.J.S.A. § 12A:9-502(a) (Sufficiency of financing statement). The purposes of the collateral descriptions included in security agreements as opposed to those in financing statements are different—the security agreement provides “evidentiary functions of . . . attachment and enforceability” while financing statements carry “the more limited goals of ‘notice filing.’”5
Prior to May 11, 2015, a financing statement was sufficient so long as it provided the name of the debtor and the name of the secured party or a representative of the secured party, as well as “indicate[d] the collateral covered by the financing statement.”6 Effective May 11, 2015, however, in order to be sufficient, a financing statement must satisfy two additional requirements: (i) it must ensure that the name of the secured party or its representative “discloses the identity” of the secured party or its representative, and (ii) it must indicate that the collateral is within the scope of Article 9 of the UCC.7
For filings on behalf of banks, insurance companies or other bona fide secured parties, we do not believe that the first amendment to N.J.S.A. § 12A:9-502(a) will require changes to the manner in which the secured party is identified on a financing statement. The second amendment to N.J.S.A. § 12A:9-502(a), however, will require a change to the collateral description in the financing statement, namely, the inclusion of a clause stating that the collateral covered by the financing statement is within the scope of Article 9.
Of note, while N.J.S.A. § 12A:9-502 was modified, N.J.S.A. § 12A:9-504 (Indication of collateral) was left unaltered. N.J.S.A. § 12A:9-504 provides that a “financing statement sufficiently indicates the collateral that it covers if the financing statement provides: . . . an indication that the financing statement covers all assets or all personal property” of the debtor.8 Thus, the two sections appear to conflict with respect to what constitutes a sufficient indication of collateral. Due to the apparent inconsistency between amended N.J.S.A. § 12A:9-502(a) and N.J.S.A. § 12A:9-504, the prudent approach is to comply with amended N.J.S.A. § 12A:9-502(a) and, within the collateral description in a financing statement—even a financing statement covering all assets of the debtor—to include language indicating that the collateral intended to be covered by the financing statement is within the scope of Article 9 of the UCC, pursuant to N.J.S.A. § 12A:9-102 and 12A:9-109.
Finally, in light of the greater latitude of a filing office to reject a filing, it is especially important to take the steps necessary to ensure that financing statements submitted to be filed are, in fact, filed.
1 Senate Commerce Committee Statement to Senate Committee Substitute for S. 2106 (March 9, 2015).
2 N.J.S.A. § 12A:9-516(b)(8).
3 N.J.S.A. § 12A:9-520(e).
4 N.J.S.A. § 12A:9-516(d).
5 Comment 5 to N.J.S.A. § 12A:9-203.
6 N.J.S.A. § 12A:9-502(a) (former version).
7 N.J.S.A. § 12A:9-502(a).
8 N.J.S.A. § 12A:9-504.