USA Law and Practice Contributed by: Stelios Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins
such an arrangement as merely the reservation of a security interest. Article 9 of the UCC broad - ly overrides restrictions on assignment under contracts or applicable law that would prohibit or restrict the creation of a security interest in the asset. The extent of the override depends on several factors, including the type of asset in question and whether the restriction is on the sale of the asset or only the creation of a security interest in it. 5.6 Release of Typical Forms of Security The primary method of lien release is an agree - ment or acknowledgment by the secured party, together with terminations of financing state - ments or other filings made in public records. The security agreement or loan agreement typi - cally contains provisions setting out the circum - stances in which the security interest in collateral will be released, including upon payment in full of all outstanding obligations. To the extent a sale or disposition of collateral is permitted under the credit agreement, it is common to provide a cor - responding release of lien in the collateral. Although the lien release provisions may be drafted to occur automatically upon the repay - ment or disposition, it is market practice to include agreement from the lender (or its agent) to expressly release and terminate the applicable liens, such as in a loan payoff letter (in the case of loan repayment) or a lien release instrument (in the case of a disposition). In connection with the release, physical collateral of share certificates and promissory notes that were delivered to the lender will be returned to the debtor. In addition, the lender will: • file (or authorise the filing of) UCC-3 termina - tion statements with respect to all UCC-1 financing statements filed against the debtor and termination of the security interest filings
made at the US Copyright Office and the United States Patent and Trademark Office; and • provide notice of lien release to applicable third parties who have entered into control arrangements with the lender. If other perfection methods were undertaken in connection with the collateral (such as real estate mortgages or entry into control agreements with third parties), additional termination agreements or instruments may also be required. 5.7 Rules Governing the Priority of Competing Security Interests and/or Claims In the US, borrowers often incur multiple financ - ings with different lenders, each secured by a valid and enforceable security interest in a common pool of collateral. The UCC provides statutory rules to determine priority of compet - ing liens in personal property collateral. Among secured creditors, a perfected security interest has priority over an unperfected one. Among creditors with perfected liens, a security interest perfected by control or possession generally has priority over a security interest perfected only by a UCC-1 financing statement filing and among creditors who perfect only by UCC-1 financing statement filing, the first in time to file generally has priority. The most notable exception to the first in time rule is the priority given under the UCC to creditors secured by a purchase money security interest (PMSI) so long as the PMSI lender complies with the filing (and, in the case of inventory, notification) requirements within the period set out under the UCC. The statutory rules of priority under the UCC can be contractually altered by the lenders, typically in an intercreditor agreement entered into by the different lenders (or their agents) and acknowl -
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