Debtor’s Name Change? What To Do

signing document

A proper financing statement must provide the name of the debtor, and there are fairly strict requirements for the sufficiency of the debtor’s name. (See UCC§§ 9-502& 9-503.) If the debtor’s name changes such that the name on the financing statement no longer matches the debtor’s name closely enough to avoid being seriously misleading when measured after the name change, the effect of the financing statement is limited.

A financing statement that previously sufficiently provided the name of the debtor but that would be seriously misleading if measured after the name change still provides the secured party with two things: continued perfection for collateral acquired before the name change and a four-month opportunity to amend the financing statement to provide the debtor’s new name and extend the effect of the financing statement. (See § 9-507(c).)

A security interest perfected by a proper financing statement remains perfected despite the debtor’s name change with respect to assets of the debtor as of the date of the name change or acquired within four months thereafter. (See § 9-507(c)(1).) Practically, it will be important to have a detailed and current collateral list, to have some evidence regarding what assets the debtor had and when those assets were acquired. Imagine a credit transaction,shortly after the name change, where a competing party gives value to the debtor and the debtor grants a new security interest. The new secured party obtains a UCC search report using the debtor’s new name, which report does not reveal the existing filing using the debtor’s old name. Having taken on too much debt, the debtor promptly defaults, and the new secured party takes possession of the debtor’s assets. You want to recover your collateral from the competing secured party. Among other things, you will need to prove which assets are your collateral, hence the need for a detailed and current collateral list. Fortunately, the UCC allows for continuing perfection and priority, at least in certain collateral, despite the name change.

Within four months after the name change, a secured party can amend its financing statement to provide the debtor’s new name and preserve the perfection and priority, despite the name change, even in assets of the debtor acquired more than four months after the name change. (See § 9-507(c)(2).) A “late” amendment – that is, one filed more than four months after the name change – would work like an amendment adding a debtor; it would provide perfection and priority only from the date of the amendment.

There is good reason to include a term in your agreement that requires a debtor to notify you immediately if the debtor changes its name. Prudence also suggests periodic monitoring, in case the debtor fails to notify you. And, in any case, there is good reason to act promptly if you learn of a debtor name change.