Is it a true lease or a security interest? That is the question.
In a recent article, US Equipment Leasing and Finance Legal Update – January 2016, author Edward Grenville stated that one of the most litigated issues under UCC Article 9 is “whether a lease is a true lease or a security interest.”
What’s the difference? According to Grenville, “… the difference being whether the lessor is a secured creditor or the owner of the equipment subject to the debtor’s right to assume or reject the lease in the bankruptcy proceeding.”
So, what can be done to avoid this “most litigated issue”? File a UCC!
“Where the characterization of the lease is uncertain, always (i) make sure that the lease grants a security interest, and (ii) file a precautionary financing statement to assure treatment as a secured creditor with a perfected security interest in case the lease is found to be a financing transaction.”
It’s a tale as old as mechanic’s lien statute itself: “I’m not going to file the lien, because my customer says he’s going to pay me next week & it will just tick people off”. Sure, sometimes customers pay exactly when they say they are going to pay… sometimes.
This week we discussed the backlash of Back9Network, Inc.’s recent bankruptcy filing and the power of a general contractor’s persuasion, which put subcontractors and materials suppliers in a tough spot.
The subcontractors and suppliers were unpaid and they didn’t secure their mechanic’s lien rights because they were told it would “rock the boat”. Learn more in My Customer is Going to Pay Soon
Did you know there are other forms of security for construction projects? Yes, you can file a mechanic’s lien or bond claim, but there are also tools available to stop the flow of funds on a project.
Check out this week’s infographic to learn how Lien on Funds, Public Improvement Lien & Stop Notice can show you the money!
Join us next week on February 9th @ 1:00 pm for An Advanced Looked at the UCC Process.
Don’t forget, all of the NCS live webinars are FREE!