welcome to the ncs 2018 webinar series
TRANSCRIPT
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Copyright 2018 C&S Associates, Inc. 800.826.5256
For Webinar Technical Assistance, please call NCS at 800-826-5256
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Today’s Webinar: The Basics of The UCC Process
January 9, 2018
Welcome to the NCS 2018 Webinar Series
#NCSwebinar
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Agenda
• Uniform Commercial Code and Revised Article 9
• Blanket UCC-1 Filings
• Priority in UCC Filings
• Purchase Money Security Interest
• Benefits in Chapter 7 Bankruptcies
• Inventory vs. Equipment
• Repossession
• Security Agreement
• Financing Statement
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Collateral
Property pledged as a guarantee
of payment for an obligation or
loan.
Collaterize
Receivables Personal Property Real Property
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Improve Cash
Flow
Improve Working
Capital
Reduce DSO
Proven Strategies
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The cost of write-offs
The Value of Money
Margin % Write Off Sales to Recover
30 $50,000 $166,666
25 $50,000 $200,000
15 $50,000 $333,333
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Article 1: General Provisions
Article 2: Sales
Article 2A: Leases
Article 3: Negotiable Instruments
Article 4: Bank Deposits and Collections
Article 4A: Funds Transfers
Article 5: Letters of Credit
Article 6: Bulk Transfers
Article 7: Warehouse Receipts, Bills of Lading
Article 8: Investment Securities
Article 9: Secured Transactions
The Uniform Commercial Code
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Copyright 2018 C&S Associates, Inc. 800.826.5256
The same protections are
available under Canada’s
PPSA.
Personal Property Security Act
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Copyright 2018 C&S Associates, Inc. 800.826.5256
The Expanding Code
• Canada
• Mexico
• Puerto Rico
• Australia
• New Zealand
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Copyright 2018 C&S Associates, Inc. 800.826.5256
• July 1, 2001
• July 1, 2013
Article 9 Revisions
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Copyright 2018 C&S Associates, Inc. 800.826.5256
The Best Possible Position
to Get Paid
If your customer (the debtor)
goes out of business (defaults)
before the goods or services
you provided are paid for, you
are in the best possible
position of getting back some
of the goods or some of the
money due.
Secured Transactions
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• Secured creditor status in a Chapter 7
• Right of Repossession (PMI)
• Part of the secured creditor team in a
Chapter 11
• Generally protected from preferential
payment suits
• Public record of debt in case business is
sold
Benefits of UCC Filings
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• Misconception
• Cumbersome
• Never been
burned
Why is There Not a Greater Use of UCC Filings?
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1. Blanket, or Basic
2. Purchase Money
Security Interest
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Two Characteristics:
1. The filing covers all assets 2. The priority stacks
Blanket, or Basic, UCC-1 Filing
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Those creditors who are:
• Providing financing only
• Providing services only
• Providing materials, inventory, equipment
or goods that are quickly used up or resold
by the debtor
Who Has Application for a Blanket UCC-1?
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Who Has Application for a Blanket UCC-1?
Those creditors who are:
• Providing financing only
• Providing services only
• Providing materials, inventory, equipment
or goods that are quickly used up or resold
by the debtor
• Structuring notes
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Debtor =
$61,000 $20,000
$10,000
$10,000
$5,000
$10,000
Unsecured
creditors
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Copyright 2018 C&S Associates, Inc. 800.826.5256
First in
time, first in
right
Debtor =
$61,000 $20,000
$10,000
$10,000
$5,000
$10,000
$55,000
Unsecured creditors
split what’s left over
100%
100%
100%
100%
100%
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Copyright 2018 C&S Associates, Inc. 800.826.5256
First in
time, first in
right
Debtor =
$61,000 $20,000
$10,000
$10,000
$5,000
$10,000
$55,000
100%
100%
100%
100%
100%
100 unsecured creditors
$1000 each is owed
$60 each is actually paid
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Copyright 2018 C&S Associates, Inc. 800.826.5256
First in
time, first in
right
Debtor =
$61,000 $20,000
$10,000
$10,000
$5,000
$10,000
$55,000
100%
100%
100%
100%
100%
100 unsecured creditors
6¢ on the dollar
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Secured Creditors
Administrative Priority Claims
Lower Level Priority Claims
Claims are paid based
on where they are
situated on the claims
priority ladder.
Pre-petition
Unsecured Creditors
Priority in UCC Filings
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Those creditors who are:
1. Selling to stocking wholesalers.
2. Selling to stocking resellers.
3. Selling on a consignment basis where title passes
while inventory is still in the debtor’s possession.
4. Selling inventory or equipment.
Who Has Application for a PMSI Filing?
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Copyright 2018 C&S Associates, Inc. 800.826.5256
It depends on what your customer does with
the goods you sell to them.
Inventory vs. Equipment
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Is your customer reselling or using your products in
their business?
INVENTORY (GOODS) EQUIPMENT
Customer resells the
goods to another entity
Customer uses the
goods in the course of
their business
Search Contract
Notify 20-day Rule
Equipment vs. Inventory
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• Resale
• Differentiating your
receivables
PMSI: The Value of Repossession
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$20,000
$10,000
$7,000
$10,000
$10,000
$10,000
Unsecured creditors
Debtor =
$61,000
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Copyright 2018 C&S Associates, Inc. 800.826.5256
$20,000
$10,000
$7,000
$10,000
$10,000
$10,000
Unsecured creditors
Debtor =
$61,000
Your inventory
= $5,000
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Copyright 2018 C&S Associates, Inc. 800.826.5256
$20,000
$10,000
$7,000
$10,000
$10,000
$10,000
Unsecured creditors
Debtor =
$61,000
Your inventory
= $5,000
Debtor =
$56,000
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Copyright 2018 C&S Associates, Inc. 800.826.5256
$20,000
$10,000
$7,000
$10,000
$10,000
$10,000
Unsecured creditors
Your inventory
= $5,000
Debtor =
$56,000
First in time,
first in right 100%
100%
100%
100%
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Copyright 2018 C&S Associates, Inc. 800.826.5256
$20,000
$10,000
$7,000
$10,000
$10,000
$10,000
Your inventory
= $5,000
Debtor =
$56,000
First in time,
first in right 100%
100%
100%
100%
Unsecured
Creditors $0
90%
50%
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Copyright 2018 C&S Associates, Inc. 800.826.5256
The Objection
Do you really think
there is going to be
any inventory left to
repossess in a
Chapter 7?
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Come on, I ran a
credit report, there
are 15 previously
secured creditors.
What’s the value in
being 16th?
The Objection
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Copyright 2018 C&S Associates, Inc. 800.826.5256
Debtor =
$80,000 $20,000
$10,000
$7,000
$10,000
$10,000
$10,000
Chapter 11
Unsecured
Creditors $0
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Copyright 2018 C&S Associates, Inc. 800.826.5256
1. Security Agreement 2. Financing Statement or UCC-1
Two Required Elements
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• Creates the
secured interest
• Spells out terms
and conditions
Security Agreement
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Can be a stand-alone
document or exist in
other forms • Loan agreement
• Sales agreement
• Consignment agreement
• Promissory note
• Conditional sales contract
• Dealer agreement
• Or….
Security Agreement
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Copyright 2018 C&S Associates, Inc. 800.826.5256
redit
pplication
ecurity
greement
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• Records the secured
interest and makes it a
public record
• In effect for five years,
at which time can be
continued for another
five-year period
• Filed in locations based
on your customer’s
form of business
Financing Statement
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Copyright 2018 C&S Associates, Inc. 800.826.5256
All inventory / goods manufactured by or distributed by Secured Party,
whenever sold or consigned, to or for the benefit of Debtor by Secured Party,
wherever located, now owned and hereafter acquired including but not limited
to...; and all proceeds from the sale thereof; and all existing or subsequently
arising, accounts, and all accounts receivable which may from time to time
hereafter come into existence during the term of this Security Agreement.
1 • General
enough to write one
2 • Specific
enough to identify your goods
3 • Collateralized
to the extent you are owed money
Three Goals of a Collateral Description
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Copyright 2018 C&S Associates, Inc. 800.826.5256
• UCC filings provide a way to have collateral pledged against open credit lines
• Trade creditors have the same opportunities as banks to have this collateral
pledged
• UCC filings can provide you protection in the event that your customer
defaults or files bankruptcy
• They also can provide you protection from preferential payment claims
• A position “in line” can be taken on intangible assets and priority in tangible
assets, such as inventory or equipment, can be established
• The secured interests are created through a security agreement and made a
public record via a financing statement or UCC-1
Review of Topics Covered
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Questions & Comments
Thank you for your time!
Visit us online: www.ncscredit.com
Jerry Bailey: [email protected]
Call us: 800-826-5256 ext. 177
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Education & Resources
• Don’t miss our upcoming webinars! View the schedule at: www.ncscredit.com/education
• NCS webinars are available OnDemand.
Contact us to learn more.
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