USA Law and Practice Contributed by: Michael Chernick, Sara Coelho, John Chua and Josh Tryon, A&O Shearman
• assets that would cause negative tax consequenc- es if pledged; • assets subject to burdensome perfection require- ments such as certificates of title; and • “intent-to-use” trade mark applications for the registration of a trade mark. The creation of security interests for most categories of personal property is governed by the Uniform Com- mercial Code (UCC). The requirements for creating enforceable security interests with respect to personal property under Article 9 of the UCC are the following: • The lender must provide value to the grantor of the security interest. • The grantor must have rights in the collateral or the power to transfer rights in the collateral to the lender. • Either the grantor must execute a security agree- ment, which must be authenticated by the gran- tor and describe the collateral, or, in the case of certain types of collateral, the collateral must be in the possession or control of the lender. To create a security interest in assets not governed by the UCC (eg, real property and certain kinds of intellectual property), the parties will typically create separate collateral documents or mortgages pursu- ant to applicable legal requirements in the jurisdiction governing the property. Lenders must perfect such security interest to obtain priority vis-à-vis other creditors. The relevant perfec- tion requirements under Article 9 of the UCC depend on the asset type, but generally Article 9 of the UCC provides the following four methods of perfecting security interests in domestic personal property: • filing a UCC-1 financing statement in the appropri- ate jurisdiction (which is a short document setting forth basic information about the grantor and the secured party, and a collateral description); • possession, in the case of certain tangible assets (such as “certificated securities”); • establishing control, which may be effected by entering into control agreements in the case of deposit accounts, letter of credit rights, investment accounts and electronic chattel paper; and
• perfection upon attachment (ie, automatically upon the creation of the security interest), for certain other personal property. Perfection of security interests in federally registered copyrights (and, by custom, patents and trademarks) requires filing with the US Copyright Office (or the US Patent and Trademark Office), in accordance with fed- eral law. Various state and federal laws govern perfec- tion of security interests in motor vehicles, aircraft, ships and railcars, with separate registries and perfec- tion steps. Mortgages in real property are perfected by recording such mortgages (or equivalent documents) with the local (usually county-level) recording office where the real property is located. 5.2 Floating Charges and/or Similar Security Interests Article 9 of the UCC permits the granting of a floating lien in the form of an “all assets” pledge, which can include all personal property owned by the grantor. Further, there is no distinction between floating and fixed charges in the USA, so the granting of security interests over personal property normally covers both presently owned and later acquired assets. Important- ly, however, “all assets” pledges apply only to per- sonal property that is subject to the requirements of Article 9 of the UCC (with certain exceptions for asset types such as commercial tort claims, which must be described with more specificity). Other assets – such as real property and federally registered copyrights – cannot be subject to floating liens. For certain asset types, such as motor vehicles, creation of a security interest is governed by Article 9 of the UCC, but per- fection is governed by state certificate of title laws, so perfection of security interests over such assets can- not be obtained by filing a UCC-1 financing statement. 5.3 Downstream, Upstream and Cross- Stream Guarantees In the USA, there are generally no limitations or restric- tions on the provision of guaranties to related parties. However, to avoid a guaranty from being rendered unenforceable on the grounds of fraudulent con- veyance, downstream, upstream and cross-stream guaranties should include a limit on the guaranteed amount and the guarantor must either receive ade- quate consideration or must not be rendered insol-
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