Federal Appeals Court Ruling a Warning for Secured Lenders
February 23, 2015
In a case arising from the bankruptcy of General Motors (In Re Motors Liquidation Company, et al.,) the termination of a key UCC-1 statement securing a $1.5 billion credit—where both the debtor and creditor acknowledged that the termination was in error—was deemed to be “authorized” under Delaware’s Commercial Code Section 9509(d)(1). The error rendered the creditor, JPMorgan Chase Bank, an unsecured creditor in the action. Under Delaware’s version of Section 9–509(d)(1), which is identical to California’s version, a UCC–3 termination statement is effective if “the secured party of record authorizes the filing.” The Court held that if the creditor authorized the filing of a UCC-3 termination statement, it is effective regardless of what the creditor subjectively intends. “If parties could be relieved from the legal consequences of their mistaken filings,” the Court wrote, “they would have little incentive to ensure the accuracy of the information contained in their UCC filings.” See CBA’s Regulatory Compliance Bulletin for more information.