Business owners dealing with merchant cash advance disputes may find UCC financing statements filed against business assets. A UCC-1 filing gives public notice of a claimed security interest, but it does not by itself prove that the creditor has a valid, perfected and enforceable security interest.
To review a UCC claim, start with the financing statement and the agreement that supposedly created the security interest.
Does the filing meet New York’s rules?
A financing statement usually must list the debtor’s name, the secured party’s information and a description of the collateral. New York also has rules for the debtor’s exact legal name and for collateral descriptions.
Not every mistake makes a filing invalid. Under New York UCC § 9-506, a filing can still be effective if it has only minor errors and is not seriously misleading. Compare the filing with the company’s legal name and the collateral description in the transaction. Do not assume that every mismatch makes the filing ineffective.
Did you grant the security interest?
A UCC-1 filing does not create a security interest by itself. Under New York UCC § 9-203, the creditor generally needs value, rights in the collateral and an authenticated security agreement that describes the collateral, unless another rule applies.
Review the agreement carefully. Check whether it actually gives a security interest, what property it covers and whether the signer had authority to grant rights in that property. A financing statement may say it covers all assets or all personal property, but that does not always mean the agreement does the same.
Could the filing still be ineffective?
The parties may still dispute attachment, perfection, priority or whether another law limits the creditor’s rights. The transaction may also involve other issues, such as fraud, misrepresentation or breach of contract. Merchant cash advance agreements often need close review because the legal character of the transaction depends on the contract terms and how the deal works in practice.
What should a business owner review?
Start with the full transaction file, including:
- The signed agreement and amendments
- The UCC-1 financing statement
- Any continuation or amendment filings
- The collateral description
- Payment records
- Notices of default
- Communications about the debt or security interest
Compare those documents carefully. A mismatch does not automatically make the filing invalid, but it may point to a problem that needs legal review. Counsel familiar with commercial finance and UCC disputes can help determine whether the security interest was properly created and whether the filing is effective.
