Q: I am a receiver for a Delaware LLC who’s business is operated in California and Nevada. A creditor of the LLC has contacted me demanding that I turnover the proceeds of receivables I have collected, contending it has a perfected security interest in the receivables because it filed UCC-1 financing statements with the Secretaries of State in California and Nevada. The plaintiffs, who got me appointed, contend the creditor is unsecured because it never filed a financing statement in Delaware, despite the fact the LLC has no assets in Delaware and only operates in California and Nevada. Who is correct?
A: The plaintiffs are correct. The creditor is unsecured. While the UCC used to require financing statements be filed in the state where the debtor’s assets were located, which at first blush makes sense, that changed with revised Article 9 of the UCC, adopted by all states in 2001. As a recent case highlighting this issue explained: “The revision worked a fundamental change by shifting the focus for filing purposes from ‘location of the goods’ as the controlling factor to ‘location of the debtor’”. In re Global One Media, Inc., 667 B.R. 878, 881-882 (9th Cir. BAP 2025). The case demonstrates the trouble a purported secured creditor can find itself in if it fails to comply with the proper filing venue.
The debtor was a Delaware LLC who operated in Nevada and New Mexico, where all its personal property was located. The creditor had filed UCC-1 financing statements in both states to secure loans of $2,747,000. When the debtor filed bankruptcy, the creditor filed a secured claim for what it was owed. The trustee objected to the claim asserting the creditor was unsecured because it had not filed a financing statement in Delaware, where the debtor was organized. The bankruptcy court ruled in favor of the creditor, but on appeal the BAP reversed. As indicated above, it pointed out that revised Article 9 changed where financing statements must be filed from ”location of the goods” to “location of the debtor”. Because the debtor was organized in Delaware, that is its “location” under revised Article 9. It cited the following provisions of Delaware law (which are the same in California): 6 Del. C. § 9-307(e) (“A registered organization that is organized under the law of a State is located in that State.”) and 6 Del. C.§9-102 (71) ( “A ‘register organization’ includes corporations and limited liability companies.”). It then cited 6 Del.C. §9-301(1) which provides that the law of the debtor’s “location” governs the perfection or nonperfection, and the priority of a security interest in collateral. It concluded by citing to a prior bankruptcy case, that had been affirmed by the Ninth Circuit, which explained some of the reasons for the change to Article 9. “This change in the law has made things considerably easier for a party to perfect its security interest, especially in transactions involving debtors with multi-state business operations. Further. lenders must examine UCC-1 filings in only one state, not multiple states, to determine whether a perfected security interest exists for any collateral belonging to the corporation anywhere in the United States.” Id. at 884, citing In re Aura Sys. Inc., 347 B.R. 720, 724 (Bankr. C.D.Cal. 2006), aff’d sub nom., 286 F. App’x 446 (9th Cir. 2008).
The Aura Systems case is itself interesting, not only on its own, but because it exposed a problem the revised Article 9 created effecting judgment liens, and resulted in California changing its version of the revised Article 9 to cure the problem. Aura Systems (Aura”) was a Delaware corporation which filed a Chapter 11 bankruptcy case. A creditor, a few years before, obtained a judgment against Aura and filed a “Notice of Judgment Lien, Form J-1” with the California Secretary of State, which is how one, at the time, perfected a judgment lien in California. Aura claimed the judgment lien was invalid. The problem was the judgment lien statute, Cal. Civ. Pro. § 697.530, provided in part: “A judgment lien on personal property is a lien on all interests in the following property…at the time the lien is created if a security interest in the property could be perfected under the Commercial Code by filing a financing state at that time with the Secretary of State (emphasis added).” The court, consistent with the discussion above, held that because Aura was a Delaware corporation, the filing of the Notice of Judgment Lien with the California Secretary of State was ineffective, just as a financing statement would be. It would have had to be filed in Delaware, where Aura was “located”. The court refused to opine on whether the creditor could have filed a California “Notice of Judgment Lien” in Delaware or the effect of doing so, because the creditor had not done so. The Ninth Circuit affirmed on the same grounds.
The decision created quite a dilemma for creditors. If they got a judgment against an non-California entity, recording it with the California Secretary of State would not create a lien and it was unclear if one could record a California “ Notice of Judgment Lien” in a foreign state where the debtor was ‘located”, at least without first obtaining a sister state judgment, which would likely require local counsel and additional costs and delay. The problem was corrected three years later, when Cal. Civ. Pro. added §697.530(g) to provide: “that the location of a registered organization, as defined in paragraph (71) of subdivision (a) of Section 9102 of the Commercial Code, that is organized under the law of another state is determined without regard to subdivision (e) of Section 9307 of the Commercial Code.” That means, to determine where a non-California judgment debtor is “located” one has to look to Commercial Code §9307, without regard to subdivision (e). Section 9307 provides: “(b)(1) A debtor that is an organization and has only one place of business is located at its place of business” and “(b)(2) A debtor that is an organization and has more that one place of business is located at its chief executive office.”
The UCC comments to the section note, however, that the term “chief executive office” is not defined anywhere in the UCC. Never the less, it states it “means the place from which the debtor manages the main part of its business operations or other affairs. This is the place where persons dealing with the debtor would normally look for credit information and is the appropriate place for filing.”
All this means, as receiver, when dealing with an entity not organized in California, you need to check in the state of its organization to determine what non-judgment liens may exist, and either in the state where its place of business is or where its chief executive office is, if it has more than one place of business, to determine if there are existing judgment liens. Likewise, if you are a creditor, you need to file your financing statement in the state where the debtor is “located” (organized) and if you are a judgment creditor you need to file your “Notice of Judgment Lien” in either the state where the debtor does business or where its chief executive office is located. Unfortunately, Delaware, Nevada and most other states require that a judgment creditor obtain a sister state judgment first, in order to file a “Notice of Judgment Lien”.
