Last week, the United States Bankruptcy Court for the Southern District of New York held that a UCC-3 termination statement is effective to terminate a financing statement under the Uniform Commercial Code only if the filing of the termination statement was authorized by the secured party whose security interest was terminated. This decision raises the bar on the level of diligence by potential creditors to confirm that any prior liens covering their prospective collateral were effectively terminated. As stated by the Court, “the fact that a termination statement has been filed does not by itself mean that the initial statement came to an end.”
Bankruptcy Judge Robert Gerber denied a motion for partial summary judgment by the Official Committee of Unsecured Creditors of Motors Liquidation Company (formerly known as General Motors Corporation) in connection with the Chapter 11 reorganization of General Motors Corporation. The Committee sought a determination that the principal lien securing a $1.5 billion term loan to General Motors was terminated prior to the filing of the Chapter 11 case by virtue of a UCC-3 termination statement that mistakenly listed the filing number of the financing statement relating to the security interest securing the $1.5 billion term loan. The Court, however, found that the termination statement had not been authorized and therefore concluded that it was ineffective.
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