November 6, 2024 - On October 30, the LSTA hosted a webinar, 2022 UCC Amendments: Don’t Forget: Transition, Choice of law, and Legal Opinions, presented by Ed Smith of Morgan, Lewis & Bockius LLP and Steve Weise of Proskauer Rose LLP.
The presenters started with a brief overview of the UCC amendments before they addressed the issues which members would face after the amendments were enacted by, or become effective in, their state. These included choice of law, the basic rules of Articles 12 and 9 of the UCC, and choice-of-law issues that arise because the amendments are in effect in some but not all states. They also addressed how to deal with the drafting of typical legal opinions under the 2022 Amendments.
By way of background, the 2022 Amendments include new provisions relating to new defined terms, controllable electronic records (CERs), controllable accounts, and controllable payment intangibles (a right to payment that is evidenced by the CER that would qualify as an account under article 9, would thus qualify as a controllable account, and if a payment intangible, it would be a controllable payment intangible). These provisions apply to sales and secured transactions that secure obligations. The amendments also add safe harbors to the definition of control for chattel paper evidenced by an electronic record and also for electronic documents of title and so you do not need one authoritative copy. Thus the new provisions accommodate distributed ledger technology. The presenters noted that the response to the new provisions for electronic money and control of electronic money was somewhat controversial and thus surprising.
Although the presenters focused primarily on controllable electronic records (“CERs”), they noted that similar analyses are applicable to controllable accounts, controllable payment intangibles, chattel paper in electronic form, and electronic documents.
Twenty four states have already enacted the amendments and they have taken effect; however, in New York, they have not yet passed them and are unlikely to do so in 2024, but the amendments are high on the radar for next year, and they are being monitored and pushed by the City bar.
As one would expect with these important UCC amendments, it is important to protect the expectations of parties to pre-amendments effective date transactions and to provide for sufficient time for parties to plan transactions post-amendments effective date.
The transition rules do not contain a uniform effective date for the amendments because some states were ready to enact the amendments as early as possible. However, the transition rules will typically contain a uniform adjustment date of the later of July 1, 2025, and one year from the effective date. The second part of the transition rules, which include this adjustment date, is designed to give transacting parties a grace period to preserve priorities already established on the effective date if the amendments would otherwise affect those priorities. The effective date deals generally with issues regarding perfection, and the adjustment date deals generally with matters of priority.
The choice of law rules apply when not all states have enacted the amendments. The forum court, after using its own choice-of-law rules to determine applicable law, then applies that applicable law’s rules for characterization and substantive law . The forum court does not apply the applicable law’s choice of-law rules (no renvoi).
In addition to transition and choice of law, the presenters addressed legal opinions and giving an opinion on perfection of a security interest by filing a financing statement or by taking control. The Tribar started a project a couple of years ago to address these revisions to Articles 9 and 12. The TriBar Report on Opinions Under 2022 Amendments to the Uniform Commercial Code Regarding Emerging Technologies of the TriBar Opinion Committee–Opinions on Secondary Sales of Securities, 79 Bus. Law. 407 (Spring 2024) has been posted in front of the ABA pay wall. The report summarizes amendments, provides illustrative assumptions, and provides illustrative opinion language.
If you give an opinion, you must know the law, and the presenters suggested tracking the language of the UCC when giving the opinion. By grounding the language in the statutory text, you will help to avoid questions about the meaning of your opinion. Typically, the opinions given in this area especially for secured transactions cover areas such as: the creation of a security interest, whether control has been achieved (and you will likely need to make a lot of assumptions here which the presenters also discussed), the effect of perfection of a security interest by control, and whether the opinion recipient is a qualifying purchaser and thus takes free of adverse claims. Not all may be required but the list is typical of the opinions given in this area.
The presentation was incredibly helpful with examples provided, and members are encouraged to listen to the webinar if their practice covers this area. Click here for the slides and replay.
