About the author: A prolific writer and presenter, Edward Noyer has penned numerous articles
for trade association magazines and paralegal associations across the
nation. His background in banking and certification from an American
Bar Association-approved paralegal program only add to his credentials,
which include a degree in business administration and marketing. Edward is currently the Director of Product Marketing at Parasec.
Can a UCC filer use an
assumed name as the organizational name when the assumed name is x-Referenced
in the corporate index? Bankruptcy Court asked to decide.
Does the existence of cross-referenced
debtor name on a corporate filing office website meet the definition of “public
record” for an organizational debtor? This is a question posed recently in the
Eastern District of Michigan, Southern
Division (Detroit)
bankruptcy court
case.
In the bankruptcy
case of In Re: Harvey
Goldman & Company,
a/k/a
Worldwide
Equipment Company,
2011 Bankr. E.D. LEXIS
3356 Mich. (Sept. 13,
2011).
“The Harvey Goldman
& Company” was formed
as a Michigan corporation
in 1947 with the filing of Articles of Incorporation.
On
June 7, 1991, a certificate of assumed name was filed with the Department of
Licensing and Regulatory Affairs, Corporations Division. This filing indicated
that
the corporation would be using the name of “Worldwide Equipment Company” to
transact business.
On January 3, 2007, the Abraham and
Geraldine Irrevocable Living Trust filed a UCC-1 Financing Statement with the
Michigan Secretary of State. The UCC was filed under the debtor name of “World
Wide Equipment Co.” The filed UCC states
that it covers “inventory in the amount of $650,000 to secure an outstanding
loan.”
On July 14, 2010, an involuntary
Chapter 7 petition
was filed against “The Harvey Goldman & Company.” Having
become aware of a security interest claimed by the secured party, the
bankruptcy trustee filed a motion for summary judgment against the secured
party alleging the financing statement was not filed under the debtor’s
corporate name.
The defendant (secured party) filed
their financing statement under the name of “World Wide Equipment Co.” a
similar name to the name on the assumed name statement of “Worldwide Equipment
Company.”
The plaintiff argued that the true
name of the corporation was “The Harvey Goldman & Company” and therefore
should have been the name provided as the debtor for the UCC filing. The
defendant did not dispute that the name of the corporation was “The
Harvey Goldman & Company.” The defendant also did not dispute that the
Michigan Uniform Commercial Code states that, “...
if the debtor is a
registered organization the financing statement is only sufficient if it
provides the name of the debtor as indicated on the public record of the
debtor’s jurisdiction of organization which shows the debtor to have been
organized.”
The plaintiff provided proof that a
UCC and Tax Lien search from the Michigan Secretary of State conducted by the interim trustee did not
disclose the secured parties filing as it was filed under the wrong name. The
defendant concurred that their filing failed to be located in the UCC and Tax
Lien search obtained from the interim trustee, however, the defendant offered
the court four arguments as to why their filing was not seriously misleading
and had been filed under the correct debtor name.
- The filing of the assumed name certificate had made that name the name of the debtor. Therefore, the failure to provide the name “The Harvey Goldman & Company” did not make their financing statement seriously misleading.
- A search of the “public record” at the Department of Licensing and Regulatory Affairs corporate division would have led to the debtor name of “Worldwide Equipment Company” as it is cross referenced with “The Harvey Goldman & Company” so a search of either name reveals the other.
- A financing statement is effective even if it has minor errors or omissions unless those errors and omissions make the statement seriously misleading. As the financing statement was cross referenced in the corporate division index, and this agency is a ‘filing office’ this statement would not have been seriously misleading.
- The debtor conducted business using the name “Worldwide Equipment Company” with all checks, letterhead, invoices and signs. In addition, the correct tax identification number had been provided on the financing statement.
The court rejected each and every
argument set forth by the defendant as a false argument and fallacious method
of reasoning. The instructions on a Michigan Assumed
Name Statement
clearly state it is to be used by, “corporations...desiring to
transact business under an assumed name other than the true name [emphasis
added] of the corporation.” Michigan law clearly sets forth that the name of
the corporation is the name provided on the Articles of
Incorporation. As the Articles
of Incorporation list the name of the
corporation as “The Harvey Goldman & Company,” this is the name of the
organizational debtor. Having establishing the name of
the corporation as “The
Harvey Goldman & Company” the defendants’ arguments became a house of
cards. With a debtor name clearly established, the search logic would now deal
the final blow to the defendant.
The search logic is the test as
to
whether a filing is “seriously misleading.” If a filing is located using the
standard search logic,
it is not considered “seriously misleading.” However, if
the standard search logic fails to locate a filing, it is deemed “seriously
misleading” under Michigan law and fails to perfect a security interest.
The final argument raised by the
defendant had to do with the fact the corporations’ signage, business documents
and tax ID number where all under “Worldwide Equipment Company.” The court
found that, “this is unremarkable as it is what one would expect of a
corporation doing business under an assumed name.”
The Uniform Commercial Code
is very
clear in §9503 that when a UCC is filed against an organization it “must
contain the name of the debtor indicated on the public record of the debtors
jurisdiction of organization which shows the debtor to have been organized.”
This section also states that a UCC is not rendered ineffective by the lack of
a trade name.
One of the fascinating facts to come
from this case is that even
if the court had found the trade name was
acceptable it would still have been regarded as seriously misleading and
ineffective to perfect a security interest as a space was placed between the
words “world” and “wide.” Under the search rules in Michigan, this spacing
would have resulted in the filing being excluded from the official search.
Since the filing would not have been located using the standard search logic
the filing would have been seriously misleading and ineffective to perfect a
security interest. There was no way in which this defendant could have
prevailed in this case. •
Parasec is a legal
document filing company and does not provide legal advice. Since every
transaction is different, clients are advised to speak to an attorney. Parasec
makes no warranties as to the completeness or accuracy of this document.
