Insolvency and Restructuring

Court Upholds Validity of Security Interest Where Financing Statement Was Filed Early

Contact: Cindi E. Cohen, Lerch, Early & Brewer (Maryland, USA)

In the case of In re Adoni Group, Inc., the Bankruptcy Court for the Southern District of New York upheld the perfection of a security interest where the financing statement was filed prior to the execution of the security agreement without prior written authorization from the debtor.   Capital Business Credit (CBC) filed a UCC-1 financing statement on May 15, 2013, asserting that it held a security interest against the debtor's assets. The next day, CBC and the debtor entered into a factoring agreement and an inventory security agreement. These agreements included provisions granting CBC a security interest in the debtor's assets. The following year, an involuntary bankruptcy was filed against the debtor and the unsecured creditors sought to have CBC's security interests declared void because the debtor had not signed security agreements or otherwise authorized the filing of the financing statement as of the date of its filing. After reviewing the language of the New York UCC, the court upheld the validity of CBC's security interest.  

Read on to discover how the court came to its decision and what lenders should know at "Court Upholds Validity of Security Interest Where Financing Statement Was Filed Early."

Cindi Cohen is a commercial lending and real estate attorney at Lerch, Early & Brewer in Bethesda, Maryland. Her practice is focused in the fields of real estate transactions, including leasing and acquisitions and dispositions, general business transactions, financing, foreclosures and general lender representation. For more information on security agreements and financing statements, contact Cindi at at (301) 657-0169 orcecohen@lerchearly.com.  

This article originally appeared in Lerch Early's Commercial Lending Bulletin. To subscribe, visit http://www.lerchearly.com/publications/7.

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