BILL ANALYSIS Ó AB 502 Page 1 ASSEMBLY THIRD READING AB 502 (Wagner) As Amended May 24, 2013 Majority vote JUDICIARY 6-4 APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Wieckowski, Alejo, Chau, |Ayes:|Gatto, Harkey, Bigelow, | | |Dickinson, Garcia, Stone | |Bocanegra, Bradford, Ian | | | | |Calderon, Campos, | | | | |Donnelly, Eggman, Gomez, | | | | |Hall, Ammiano, Linder, | | | | |Pan, Quirk, Wagner, Weber | ----------------------------------------------------------------- -------------------------------- |Nays:|Wagner, Gorell, | | |Maienschein, Muratsuchi | | | | -------------------------------- SUMMARY : Adopts various amendments to Division 9 of the Uniform Commercial Code, governing secured transactions in personal property. Specifically, this bill, among other things: 1)Revises the requirements for a financing statement to sufficiently provide the name of a debtor that is a registered organization, or where the collateral is held in a trust or is being administered by the personal representative of a decedent's estate. 2)Specifies rules that apply to collateral to which a security interest attaches within four months after the debtor changes its location to another jurisdiction, or where there is a new debtor that is a successor by merger. Specifically, provides the filer with perfection for four months in collateral acquired post-move, and provides for temporary perfection in collateral owned by the successor before the merger or collateral acquired by the successor within four months after the merger. 3)Replaces references to "correction statement" with the term "information statement," and authorizes the secured party of record to also file an information statement if the secured party believes that an amendment to its financing statement AB 502 Page 2 was not authorized. 4)Specifies an additional requirement for determining whether a secured party has control of electronic chattel paper. 5)Implements transitional rules for determining the perfection of a security interest, and makes many other technical and corresponding changes. 6)States that these provisions become operative on July 1, 2014. FISCAL EFFECT : According to the Assembly Appropriations Committee, this bill contains a one-time special fund appropriation of $240,000 to the Secretary of State to promulgate regulations, update forms, and modify an automated filing system. (Business Fees Fund) COMMENTS : On behalf of the sponsor, the California Commission on Uniform State Laws, the author introduced this bill to adopt revisions to Article 9 of the Uniform Commercial Code (UCC) set forth in 2010 by the American Law Institute and the National Conference of Commissioners on Uniform State Laws (hereafter, "Uniform Law Commission" or ULC). Collectively, these revisions are referred to as the "2010 Amendments." The last major revision of Article 9 was in 1999 which was adopted in all fifty states. It is the stated goal of the ULC to enact the 2010 Amendments in all 50 states with an effective date of July 1, 2013. This revision is current law in over 30 states, and has been introduced this year in the legislatures of another sixteen states. This bill would enact many of the 2010 Amendments in this state, which uses the nomenclature "Division 9" rather than "Article 9" when referring to the California Commercial Code. According to the Uniform Law Commission, Article 9 of the UCC governs secured transactions in personal property-that is, the granting of credit secured by personal property. Hundreds of millions of dollars of commercial and consumer credit are granted every year in secured transactions under UCC Article 9. Article 9 rules apply, for example, when a manufacturer finances the acquisition of machinery, a retailer finances inventory, or a consumer finances home furnishings. (Uniform Law Commission, "UCC Article 9 Amendments Enacted in 26 States," May 22, 2012.) AB 502 Page 3 Article 9 provides rules that govern any transaction, other than a finance lease, that involves the granting of credit coupled with a creditor's interest in a debtor's personal property. If the debtor defaults, the creditor may possess and sell the property to satisfy the debt. The creditor's interest is called a security interest, and perfection of the creditor's security interest establishes the creditor's priority over other creditors. Article 9 specifies who has the first rights in the collateral when two or more competing creditors have legally enforceable interests in the collateral. (Id.) Among other things, this bill seeks to enact several changes with respect to perfection issues arising on after-acquired property when a debtor moves to a new jurisdiction. Current law provides that perfection by filing continues for four months after the jurisdiction in which the debtor is located changes. However, this temporary period of perfection applies only with respect to collateral owned by the debtor at the time of the change. Even if the security interest attaches to after-acquired collateral, there is currently no perfection with respect to such new collateral unless and until the secured party perfects pursuant to the law of the new jurisdiction. This bill seeks to change this by giving the filer perfection for four months in collateral acquired post-move. A similar change would be made with respect to a new debtor that is a successor by merger. This bill would provide for temporary perfection in collateral owned by the successor before the merger or collateral acquired by the successor within four months after the merger. Under existing law, the debtor is permitted to file a correction statement, which is a claim that a financing statement filed against the debtor was in fact unauthorized. While this filing has no legal effect on the underlying claim, it does put in the public record the debtor's claim that the financing statement was wrongfully filed. This bill would rename the "correction statement" as an "information statement" and more importantly, authorize the secured party of record to also file an information statement if the secured party believes that an amendment to its financing statement was not authorized. The change addresses concerns of secured parties that an amendment AB 502 Page 4 to a different financing statement may be inadvertently filed on the secured party's financing statement because the amendment contains an error when referring to the file number of the financing statement to be amended. The bill makes a number of additional technical changes to the Commercial Code, including the following: 1) Deleting some extraneous information currently provided on financing statements; 2) establishing a safe harbor for the transfer of chattel paper in conformance with the Uniform Electronic Transactions Act , as specified; 3) clarifying requirements for certificates of title for title goods where the certificates of title are, in whole or in part, in electronic form; and 4) clarifying notice requirements applicable to electronic dispositions of collateral when a security interest is enforced by sale or other disposition of the collateral. As recently amended, the bill includes an appropriation of $240,000 to the Secretary of State for necessary regulatory updates and computer application modifications, and establishes a delayed operative date of July 1, 2014. In addition, the bill provides various updated statutory UCC-related forms needed to reflect policy and procedural changes made by this bill. Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334 FN: 0000955