Perspectives

In part one, we explored how UCC filings protect creditors by securing interests in business property. Now let’s unpack the legal mechanics of priority, enforcement, and how real-world business events like bankruptcy or acquisition can impact your rights as a secured party.

Who Gets Paid First? Understanding Priority

In a default situation, the UCC provides a clear general rule: First to perfect, first in line. That means the creditor who files first (and correctly) will have top priority among secured parties.

However, there’s a key exception: Purchase Money Security Interests (PMSIs). If the PMSI holder properly files and notifies other creditors before the debtor takes possession of the collateral, they can jump ahead in the priority line-even if others filed earlier.

Enforcement of Security Interests

Once a debtor defaults, a creditor’s rights are triggered. Here’s how enforcement works under Article 9:

• Notice and Surrender: The creditor must notify the debtor and seek voluntary surrender of the collateral.
• No “Breach of Peace”: Repossession must be peaceful. If the debtor refuses, the creditor must pursue judicial remedies.
• Sale of Collateral: Once in possession, the creditor may sell the collateral to recoup the owed balance, in accordance with UCC requirements for commercial reasonableness.

What Happens in Bankruptcy?

If the debtor files for bankruptcy, having a perfected UCC-1 ensures secured creditor status-but that doesn’t mean full recovery is guaranteed. If the value of the collateral is depleted or prior creditors exceed the available equity, you may still end up unsecured.

Subordinations: When You’re Asked to Step Aside

Sometimes a third-party creditor (often a bank) will request a subordination agreement. This means you agree to place your security interest behind theirs, allowing them to take priority. While this may help the debtor access additional capital and keep operations running, reviewing the terms carefully and reassessing your collateral’s status is critical.

Assignments, Amendments, and Business Changes

Mergers and acquisitions complicate collateral rights. If Company A acquires Company B, UCC filings may remain enforceable-if the collateral description allows for successors and assigns. In these cases, the original filing date holds, maintaining your priority.

If your business changes names, locations, or undergoes restructuring, updating the UCC-1 through assignments or amendments is essential to avoid lapses in perfection.

Final Thoughts

For finance professionals, a strong understanding of UCC filings isn’t just a box to check-it’s a proactive step in managing credit risk. Whether you’re reviewing credit applications, extending financing, or considering subordination, a properly filed UCC-1 can protect your interests and prioritize your right to recovery.

At Wagner, Falconer & Judd, our team helps simplify the complexities of commercial lending. If your company is navigating secured transactions, we’re here to review your filings, draft enforceable agreements, and ensure your position is protected.

Ready to safeguard your assets? Contact us today. 

In the world of commercial finance, risk management is essential-and one of the most important tools available to creditors is the Uniform Commercial Code (UCC). If your organization extends credit or leases high-value equipment, understanding how to leverage the UCC can mean the difference between secured and unsecured recovery in a default situation.

What is the UCC?

The Uniform Commercial Code is a standardized set of laws governing commercial transactions in the United States. Article 9 of the UCC specifically addresses secured transactions, enabling lenders and sellers to file legal claims against the collateral that backs a loan or a line of credit.

At the heart of this process is the UCC-Financing Statement-a public filing (usually with the Secretary of State) that puts the world on notice: a creditor has a legal interest in the debtor’s property.

Types of UCC Filings

There are two primary types of UCC filings:

General (or Blanket) Filings: These cover all of a company’s assets, not just a specific item. banks often use blanket liens to secure lines of credit or loans, giving them the right to repossess a broad range of assets if a default occurs.

Specific Collateral Filings: These narrowly define the collateral-such as inventory, accounts receiveable, or equipment. This approach is commonely used by vendors or leasing companies who want to secure interest in a particular asset or class of assets.

Within specific collateral filings, a Purchase Money Security Interest (PMSI) stands out. PMSIs allow the creditor to leapfrog others in terms of priority, provided certain requirements are met, including early notification and timely filing.

Getting it Right: Filing Procedures

To perfect a security interest and maintain priority, a creditor must:

1. Obtain a signed security agreement– This could be part of a credit application, a promissory note, or a stand-alone document.
2. File a UCC with the correct information:
   • Full legal name and address of the debtor
   • Creditor’s name and address
   • Precise description of the collateral (e.g., “Debtor’s inventory…now owned or hereafter acquired…”)
3. Monitor expiration dates: UCC-1 filings are active for 5 years and require a continuation statement within 6 months of expiration.

Stay tuned for Part Two, where we’ll walk through priority disputes, enforcement in default, bankruptcy implications, and what happens when businesses merge or reorganize.

For financial professionals, securing payment starts long before an invoice becomes overdue. Implementing proactive lien and bond protections can mean the difference between getting paid or writing off a loss. Here’s how you can set yourself up for success and avoid unnecessary risks.

Start with Strong Documentation

To file a lien or bond claim effectively, you need a solid foundation of documentation. Missing even one critical piece of information can cause delays or jeopardize your rights. Key documents include:

Contract: Defines the scope of work, payment terms, and lien rights.

Job Level Tracking: Ensures accurate documentation of labor and materials.

 Credit Supplement Sheet: Verifies financial details and customer information.

Notices: Preserve lien rights and establish compliance with state laws.

Invoices & Proof of Delivery: Confirm amounts owed and that materials were delivered to the job site.

Understand State-Specific Lien and Bond Requirements

Lien laws vary by state, and missing deadlines or filing incorrectly can cost you your claim. For example:

Utah: A preliminary notice must be filed within 20 days of first furnishing or lien rights are waived.

Missouri: A 10-day Notice of Intent must be served before filing a lien. If your attorney receives the lien request too late, you may lose your rights.

Being aware of state-specific requirements ensures you never miss a deadline.

Verify Ownership and Delivery Details

A lien is only as strong as the accuracy of your filings. Make sure:

The correct property owner is listed-incorrect ownership details can invalidate your lien.

You have proof of delivery to the site, not just a customer’s warehouse or rigger’s yard.

Work Within Key Deadlines

Timing is everything when filing liens and bond claims. To avoid last-minute rushes:

• Request supporting documentation from brances at least 20 days before the deadline. 
• Engage WFJ for lien/bond assistance at least 14 days prior to the deadline. 

Get Expert Guidance

When in doubt, consult a legal expert. WFJ’s lien and bond attorneys are here to help answer your questions and ensure your filings are compliant. Whether you need an opinion letter or help navigating complex lien laws, our team is ready to assist.

Don’t Wait Until It’s Too Late

By establishing proactive lien and bond protections now, you can prevent financial losses and ensure that your company is paid for the work and materials it provides. Contact WFJ today to discuss how we can help you streamline your process and secure your receivables.

For credit managers, mitigating risk is a top priority. Late payments, customer defaults, and financial instability can create serious cash flow issues and increase the risk of non-payment. One of the most effective tools available to credit professionals is the performance bond – a crucial form of protection that ensures obligations are met and payments secured.

Understanding Performance Bonds

A performance bond is a type of surety bond issued by an insurance company or bank to guarantee that a party will fulfill their contractual obligations. If they fail to do so, the surety company steps in, either to ensure completion or to compensate the affected party for losses incurred.

Performance bonds play a key role in various industries. They are commonly used in manufacturing, serving contracts, supply agreements, and large-scale transactions to provide financial security and guarantee performance.

Why Credit Managers Should Pay Attention to Performance Bonds

1. Mitigating Payment Risk-Businesses experiencing financial difficulties may struggle to pay suppliers or service providers. A performance bond provides security that obligations will be met, reducing the likelihood of unpaid invoices.
2. Ensuring Contract Completion-If a bonded company defaults, the surety ensures that an alternative solution is in place, protecting all parties involved.
3. Enhancing Credit Decisions-When evaluating credit applications, knowledge of performance bonds can help gauge financial security and business viability.
4. Supporting Collections Efforts– If a contract is breached and payments go unpaid, knowing how to leverage a performance bond claim can help recover funds.

How Performance Bonds Work in the Payment Process

Credit managers should be familiar with the three key parties involved in a performance bond:

• Obligee (Project Owner or Contracting Party)-The entity requiring the bond, often a company or government agency.
• Principal (Contracted Party)- The business obligated to fulfill the contract.
• Surety (Bonding Company)- The entity guaranteeing performance andstepping in if the principal defaults.

A performance bond is often issued alongside a payment bond, which ensures supplilers and service providers are paid even if the contracting party fails to meet financial obligations. These two bonds together provide a comprehensive layer of financial protection in contractual agreements.

Identifying Red Flags in Troubled Business Relationship

Credit managers should watch for early warning signs of financial distress to act proactively. These include:

• late or irregular payments from clients or customers
• increased disputes over contractual obligations
• companies struggling to obtain new credit lines
• delays in product or service delivery
• business restructuring, leadership changes, or talk of acquisition

Steps to Protect Your Business

Verify Bond Coverage-Before extending credit, ensure the contracting party has an active performance bond in place.

Understand Claim Deadlines-Each bond has specific notice and filing deadlines. Missing these could result in lost recovery opportunities.

Track Payment Timelines- If payments become inconsistent, invesitgate whether a bond claim may be necessary.

Work with Legal Counsel-A knowledgeable legal team can help navigate the complexities of bond claims and ensure compliance with filing requirements.

Performance bonds serve as a critical safety net across industries, offering credit managers an additional layer of protection against non-payment and contract failure. Understanding how they work and how to leverage them effectively can make all the differenece in managing risk and securing payment.

If you have concerns about payment security or need assistance with bond rights and enforcement, our team at Wagner, Falconer & Judd is here to help. Contact us to ensure your business is fully protected.

Louisiana has enacted significant amendments to its bond claim statutes, impacting both private and public projects. These changes, which took affect on August, 1, 2024, for private bond claims and June 19, 2024, for public bond claims, introduce new obligations for sureties while also allowing them to assert additional defenses in certain circumstances.

Key Changes in the Law

One of the most notable updates is the introduction of “pay-if-paid” and “pay-when-paid” defenses for sureties, provided these provisions exist in the general contractor’s contract. However, material suppliers are specificaly exempt from these defenses, ensuring stronger payment protections for their claims.

How Material Suppliers Can Secure Payment

Under the amended statuses, sureties are now required to make payment to a material supplier if the following conditions are met:

1. Delivery Compliance: The materials supplied must conform to the specifications outlined in the order.
2. None of Nonpayment: If 45 days pass without payment after material delivery, the supplier may send a Notice of Nonpayment to the general contractor, surety, owner.
3. Final Payment Notice: If 90 days elaps from the date of delivery without receiving payment, the supplier can issue a “payment notice” to the surety.
4. Mandatory Payment Decline: Upon receipt of the “payment notice”, the surety must pay the material supplier within 10 days. While the statute is unclear, it appears the deadline for payment is based on the date the “payment notice” is mailed rather than when it is received.

Proper Notice Delivery is Critical 

To ensure compliance with the new requirements, all required notices should be sent via registered or certified mail, return receipt requested. This helps establish a clear record of compliance with statutory deadlines and protects the material supplier’s rights.

While the law does not provide a detailed definition of a “payment notice”, it is reasonable to assume that this notice should include:

• Acopy of the outstanding invoice(s)
• A copy of the previously sent Notice of Nonpayment

What this Means for Material Suppliers

These amendments provide a structured process for material suppliers to secure payment more effectively, reducing the risks associated with delayed or withheld funds. By following the outlined notice procedures, material suppliers can ensure their claims are properly documented and enforceable under the new legal framework.

For businesses supplying materials on bonded projects in Louisiana, understanding and adhering to these new requirements is essential to securing timely payments and avoiding potential disputes. Staying informed and proactive in sending notices can make all the difference in ensuring financial stability and compliance with the updated bond laws.

Partner with WFJ for Legal Guidance and Protection

Navigating legal changes can be complex, but you don’t have to do it alone WFJ is here to help businesses stay compliant, protect their projects, and secure payments efficiently. Our legal team is well versed in construction law and bond claims, ensuring your rights are safeguarded under the latest legal updates. Contact WFJ today to learn how we can support your business and keep your projects moving forward without unnecessary financial risks.

Navigating the ever-evolving landscape of lien and bond laws is crucial for construction professionals and large businesses looking to protect their financial interests. In recent years, several states have enacted key legislative changes impacting private, commercial (non-residential) mechanic’s lien claims and public bond claims-shaping how contractors, suppliers, and other stakeholders secure payment on projects. Staying informed about these updates can mean the difference between a smooth claim process and costly legal disputes. Below, we break down some of the significant changes affecting commercial and government construction projects.

 Public Bond Threshold

In recent years, more states have raised the minimum contract amount that requires general contrators on public projects to secure a payment bond. Here are some of the latest increases:

Alabama – $50,000 – $100,000

Kentucky – $40,000 – $100,000

Illinois – $50,000 – $150,000

Montana – $50,000 – $150,000

Subcontractors and material suppliers should continue to track these increases to ensure there is payment protection on these government projects.

Florida

In October 2023, the Florida lien law was amended.  Notably, Florida expanded the definition of “contractor” to include both construction management services and program management services.  Construction management services include coordinating and scheduling a project’s preconstruction and construction phases, and program management services include cost and schedule control, and coordinating project planning, design, and construction.

Additionally, if a payment bond has been posted on a private project, both the contractor and the contractor’s surety must be served with the Notice of Nonpayment.  For rental equipment, the Notice must be served no later than 90 days after the date that the equipment was on the project and available for use.

Louisiana

In 2024, the law was amended for payment bonds on both private and public projects.  On payment bond claims, sureties may now assert contingent payment clauses as a defense to payment.  If there is a “pay-if-paid” or “pay-when-paid” clause in the contract, a surety can now rely on those clauses to avoid payment.

However, the amended law also created an exception for material suppliers.  If the material supplier sends notice of non-payment to the general contractor, surety, and owner, at least 45 days after the date of delivery, and is not paid within 90 days of the delivery of the materials, the surety is obligated to make payment on the supplier’s claim no later than 10 days after the supplier sends a payment notice.

Texas

In 2023 Texas amended the law for change orders issued on an current project.  For all construction contracts entered on or after September 1, 2023, if the contractor (or subcontractor) receives a directive and the value of that change totals 10 percent or more of the original contract value, the contractor (or subcontractor) can decline the work.   The contractor or subcontractor now has a statutory right to refuse to proceed with the work before an executed change order is signed.  Additionally, a contractor or subcontractor who elects not to proceed with additional work is not responsible for damages associated with the election not to proceed.

Virginia

Effective January 1, 2023, Virginia eliminated pay-if-paid provisions in construction contracts.  If the prime contract was executed prior to January 1, 2023, pay if paid clauses are enforceable, assuming the applicable contract language is clear and unambiguous.   However, if the prime contract was executed on or after January 1, 2023, a pay-if-paid clause is not enforceable in Virginia.

Changes in line and bond laws can create unexpected challenges, but they also present opportunities to strengthen your payment security. WFJ provides the legal knowledge and strategic support you need to adapt to new requirements and protect your projects. Let’s work toegether to ensure your contracts, claims, and compliance efforts are rock solid.

The information provided in this summary does not, nor is it intended to, constitute legal advice. You should not take or refrain from taking any action based on any information contained in this summary without first seeking legal advice.

State specific opinion letters are available upon request.

When a customer files for Chapter 7 bankruptcy, it’s crucial to act swiftly and strategically to protect your company’s financial interests. Below is a practical to-do list for credit managers and finance professionals navigating this complex process.

• Confirm the filing

Verify the bankruptcy filing by obtaining the case number and confirming the court’s jurisdiction.

• Comply with the Automatic Stay

Cease all collection activities immediately to avoid potential penalties for violating the automatic stay.

• Obtain the Petition and Mailing Matrix

Review the bankruptcy petition and mailing matrix to ensure your debt is listed correctly Confirm your company’s mailing address to receive important notices.

• File a Proof of Claim

Submit a timely proof of claim to establish your right to receive any distributions from the debtor’s estate.

• Review Recent Transactions

Examine transactions within the last 90 days for potential preferential payments that may be subject to crawlback.

• Evaluate Fraud Concerns

If you suspect fraud, consider pursuing and adversary proceeding to challenge the discharge of the debt.

• Confirm Lien and Bond Rights

Ensure your lien or bond rights are presereved. These rights may offer additionaly protections, even during bankruptcy.

Take Action Today

Navigating a customer’s bankruptcy requires attention to detail and expert legal guidance. Wagner, Falconer & Judd specializes in protecting creidtor’s rights. Contact us to ensure your business is positioned for the best possible outcome in Chapter 7 cases.