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American Bar Association - Defending Liberty, Pursuing Justice

Winter 2009

Vol. 5, No. 2

Business Law


Omission of “Inc.” From Financing Statement

The songwriters tell us that “little things mean a lot.” Little errors in a UCC-1 financing statement can mean a great deal—none of it good—to a creditor’s security interest. Recently, a Virginia bankruptcy court determined that the absence of the abbreviation “Inc.” from the debtor’s name in a financing statement rendered that statement ineffective to perfect a creditor’s security interest and, in the debtor’s bankruptcy case, left the would-be secured creditor completely unsecured. ( In re Tyringham Holdings, Inc., 354 B.R. 363 (Bankr. E.D. Va. 2006).) The good news, however, is that, with the right kind of diligence, you can protect yourself against this result.

In the case at issue, Suna Bros. Inc. (Suna) consigned for sale to debtor Tyringham Holdings, Inc. (Debtor), a Virginia corporation, goods worth almost $311,000. Under Article 9 of the Uniform Commercial Code (UCC 9), Suna’s interest in the consigned goods was a security interest, which Suna sought to perfect by filing a UCC-1 financing statement with the correct Virginia state filing office.

The Debtor’s name, as contained in Virginia’s corporation records, was “Tyringham Holdings, Inc.” However, Suna’s financing statement listed the Debtor’s name as “Tyringham Holdings”—omitting the “Inc.”

In the Debtor’s bankruptcy case, the court authorized the Debtor to sell its assets, including its inventory. To free as many of those assets as possible for unsecured creditors, the creditors’ committee sought to invalidate Suna’s security interest, under section 544 of the Bankruptcy Code. This section provides that a security interest that is unperfected on the date a bankruptcy case is commenced may be avoided—i.e., nullified—and the formerly secured creditor may then be treated as entirely unsecured.

Therefore, for Suna, only one question mattered: Was the financing statement it filed in the Virginia filing office sufficient to give it a perfected security interest in its collateral as of the commencement of the Debtor’s bankruptcy case? UCC 9 provides specific guidance regarding the effectiveness of financing statements. According to the statute:

  1. A financing statement is not effective to perfect a creditor’s security interest unless it sufficiently provides the debtor’s name.
  2. For a debtor-corporation, the debtor’s name in the financing statement is sufficient if it is the same as the name listed in the debtor’s articles or certificate of incorporation.
  3. With one exception, a financing statement that fails to sufficiently provide the debtor’s name is, in the parlance of UCC 9, “seriously misleading” and is, for that reason, not effective to perfect a security interest.
  4. The exception is as follows: If a search of the state’s UCC records under a debtor’s correct name, using the filing office’s standard search logic, would reveal the financing statement with the incorrect name, then the financing statement is not “seriously misleading” and is effective to perfect the security interests.

So, did a search in the Virginia UCC filing office for “Tyringham Holdings, Inc.”—the Debtor’s correct legal name—reveal Suna’s filing under the incorrect name “Tyringham Holdings”? Unfortunately for Suna, the search logic used by the Virginia filing office considered “Inc.” a significant word, and a search under the Debtor’s proper name—with “Inc.”—did not turn up Suna’s actual, erroneous filing, which was without the “Inc.”

Therefore, the bankruptcy court held that Suna’s financing statement was “seriously misleading” within the meaning of UCC 9. Suna was, therefore, unperfected as of the commencement of the Debtor’s bankruptcy case, and it lost its security interest in its collateral.

Although the result in this case was harsh for the creditor, it is also easy to avoid, and it highlights the wisdom of postclosing due diligence. Before making a loan or providing other value to a debtor, creditors are well advised to use private search firms to try to turn up all extant UCC filings, tax liens, judgments, and similar items. Creditors should also obtain certified copies of their debtor’s organizational documents—e.g., articles or certificate of incorporation for corporations; articles of formation for limited liability companies. However, after the creditor files a financing statement to perfect its interest in collateral, it may be prudent to obtain a certified search for that single filing from the state filing office itself, in order to ensure that little things—like the omission of “Inc.,” or of “Co.,” or of the periods in an abbreviation—don’t mean a lot of pain for the creditor.

Keeping Current: Bankruptcy: Omission of “Inc.” from Financing Statement, by Christopher Combest, published in Business Law Today, Volume 17, No. 3, January/February 2008. Copyright © 2008 by the American Bar Association. Reprinted with permission.

Christopher Combest is a partner at Quarles & Brady LLP in Chicago. His email is

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