For a creditor, the difference between a perfected and unperfected security interest can mean the difference between full repayment and receiving mere pennies on the dollar (or nothing) in a bankruptcy. On August 30, 2017, a Wisconsin court (United States Sec. & Exch. Comm'n v. ISC, Inc.. 2017 WL 3736796 (W.D. Wis. Aug. 30, 2017)), provided a helpful reminder of the attention to detail that is required when drafting a UCC-1 financing statement (“UCC-1”) to ensure the security interests are properly perfected.
The creditor in the case, Double Bubble, Ltd., had timely filed a UCC-1 against the debtor, ISC, Inc., and believed that it was perfected. However, the debtor’s name on the UCC-1 was incorrectly written as “ISC, Inc .” -- with an extra space after “Inc” before the period. A search of the debtor’s correct legal name (with no extra space) did not produce the filing. Because of this seemingly minor typo, the court held that the security interest was unperfected, and as a result the creditor’s repayment decreased from 100% of outstanding credit as a secured creditor to 66% as an unsecured creditor.
Some jurisdictions disregard spaces in their search logic, such that this particular mistake would still produce the filing in a search in those offices and therefore would have likely changed the court’s decision in this case. However, the case still serves as a helpful reminder to drafters of UCC-1s to double-check all spelling, punctuation and spacing before submission for filing.
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