New York’s Article 9 Non-Uniformity Re: Bankruptcy and Restructuring
Although New York is known as our leading commercial state, it certainly isn’t leading in the development of the Uniform Commercial Code. With California’s October adoption of the 2010 Article 9 amendments, New York is one of only six states that hasn’t yet revised its law. Since New York law is the governing law for many lending transactions, New York’s non-uniformity can create problems for the unwary.
New York’s delay makes little sense since the 2010 amendments are not particularly controversial. They mostly clean up details from the decade-old Article 9 revision, like specifying the proper name to use on financing statements for human debtors. But there are some important provisions for commercial finance such as new rules for perfecting security interests in electronic chattel paper and the rejection in the Official Comments of the In re Commercial Money Center, 350 B.R. 465 (10th Cir. B.A.P. 2006), case that applied the “payment intangible” classification to payment streams that were stripped from chattel paper. The expansion of the “registered organization” definition to include certain business trusts might create some serious perfection problems since 44 states now have a different choice of law rule than New York for those entities. A court in one of those states – maybe a Delaware bankruptcy court – might not recognize as perfected a security interest that was properly perfected under New York’s now non-uniform unamended law.
This may change soon since the 2010 amendments are before the New York legislature in SB 5901, but that bill may be trying to accomplish too much since it also includes revisions to UCC Articles 1, 3, 4, and 7.