USA Law and Practice Contributed by: Stelios Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins
credit rights and electronic chattel paper per - fects a security interest and may provide addi - tional protections or priority to the secured party over perfection by filing. Certain collateral such as accounts (ie, receiva - bles that are not evidenced by an instrument or chattel paper) and general intangibles (a residu - al category describing intangible collateral that does not fall into another UCC category) may only be perfected by the filing of a UCC-1 financ - ing statement. Article 12 of the UCC, which at the time of writing has been enacted in some but not all states, will permit perfection by control of digital assets, such as cryptocurrencies and non-fungible tokens (NFTs), as well as certain electronic accounts and payment intangibles that exist in controllable form. In certain circumstances, a security interest may be perfected automatically without any further action, but in commercial transactions relying on these exceptions is unusual and at a minimum a UCC-1 financing statement would be filed. A secured party may perfect its security interest by multiple methods (eg, by filing as well as by pos - session and/or control) and in the case of impor - tant assets such as certificated equity interests, a secured party will typically prefer to use every method of perfection available. Perfection by possession and/or control is gen - erally preferable to perfection by filing of a UCC- 1 financing statement alone, as this entitles the secured party to higher priority, may protect the secured party from third parties acquiring better rights in the collateral and as a practical matter may facilitate enforcement on the asset in the case of a foreclosure. The security agreement is signed at closing and contemporaneously with the loan agreement.
UCC-1 financing statements and intellectual property filings made with the US Copyright Office (in the case of copyrights) and the Unit - ed States Patent and Trademark Office (in the case of patents and trade marks) are typically filed at closing. Physical share certificates are usually delivered to the secured party at clos - ing although in the case of an acquisition these are sometimes permitted to be delivered shortly after closing. Real estate mortgages and con - trol agreements with third parties (for example, deposit account control agreements entered into with a third-party depositary bank), when part of the collateral package, are often post-closing items to be delivered within a few months of closing. It should be noted that security interest in collat - eral that is perfected beyond 30 days of the loan closing may be avoided as a preference transfer by a bankruptcy trustee in the event a grantor goes into insolvency proceedings within 90 days (or one year if the lender is an “insider”) of the perfection. If a preference action is successful, the lender will need to return the collateral or the proceeds from it to the grantor’s estate. A lender should conduct routine collateral audit post-closing to identify any gaps in perfection before the borrower group gets into potential financial distress. 5.2 Floating Charges and/or Similar Security Interests US law does not categorise grants of security as being “fixed” or “floating,” nor do those terms have legal meaning under US law, but by anal - ogy these grants are permitted and common. Under New York law and in the US more gen - erally, grants of security over personal property security routinely cover both presently owned and after-acquired assets.
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