Receiver as a Lien Creditor


QUESTION: Before the Commercial Code was amended a few years ago, it provided that a receiver becomes a lien creditor over personal property in the receivership estate and can avoid unperfected security interests in such property. I can’t find that provision in the amended code. Does it still exist, and if so where is it?

ANSWER: The concept of a receiver becoming a lien creditor upon his appointment, with the ability to avoid unperfected security interests in property of the estate, still exists in the amended Commercial Code; it’s just harder to find than it used to be. Before the Code was amended, the provision that a receiver becomes a lien creditor over personal property of the estate was found in California Commercial Code §9301. With the implementation of the amended Commercial Code in 2001 that clear provision was eliminated and separated into two different parts of the Code.

California Commercial Code §9102(52)(E) defines a lien creditor as, among other things: “A receiver in equity from the time of appointment”. That section coupled with §9317(a)(2) gets the result you are looking for. Section 9317(a)(2) provides a security interest is subordinate to the rights of a person that becomes a lien creditor before the earlier of the time that the security interest is perfected or a financing statement covering the collateral is filed.

So, like old Commercial Code §9301, the new Commercial Code does provide that a receiver becomes a lien creditor at the time of his appointment and his lien position is superior to any unperfected security interest at the time of his appointment. In order words, the receiver takes ahead of judgment lien creditors where the judgment lien was not perfected with the Secretary of State prior to the receiver’s appointment and trade creditors whose security interests were not perfected prior to the receiver’s appointment.

Published In: General Business Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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