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“All Asset” Agreement to Secure Loan Debated in Second Circuit

When secured creditors place an “all asset” agreement in their financing statement, they should be aware that less may be more. When First Niagara Bank supplemented the typical “all assets” language in its security agreement with a property description, the bank opened the door for some complex litigation.

In hearing the case of Ring v. First Niagara Bank NA, the Second Circuit sent notice to secured creditors that they should be careful in drafting their financing statements. First Niagara Bank intended to include all the debtor’s assets as collateral for a loan. However, when drafting the financing statement, First Niagara Bank supplemented the traditional “all assets” language with the additional language of “including, but not limited to, all assets located at [specific address where the collateral was located.]” The financing statement was subsequently filed to perfect their secured party status.

Since the filing of the financing statement, the debtor moved its location and, therefore, the location of the collateral. Additionally, the debtor changed the name of its corporation. First Niagara Bank amended the filings within the state’s UCC filing system to indicate the new name and address of the debtor, but they failed to change the collateral description. Several months later, after realizing the description was inaccurate, First Niagara Bank attempted to amend the filings again.

Eighty-eight days after the second amendment, the debtor filed for bankruptcy under Chapter 11. Because the code allows a bankruptcy trustee to void any transfer made within 90 days from the petition date, First Niagara Bank could not perfect its interests with the new amendments. Therefore, the case before the Second Circuit was to determine whether the earlier filings were sufficient to cover the assets that are now at a new location.

Fortunately for First Niagara Bank, the court found that the financing statement did cover the intended assets, even though they were no longer located at the place indicated when perfected. The court came to this conclusion by relying heavily on the “including, but not limited to” language. In reading that language, the court found that the financing statement still indicated the assets as collateral to the loan.

After the Second Circuit’s decision, businesses should refrain from becoming overly detailed in the “all assets” collateral descriptions. A creditor is provided with no benefit by using the additional language because the court has already held that the term “all assets” is already sufficient. Instead, it exposes them to increased litigation. In completing a financing statement, parties should seek review from an attorney.

From the initial startup of your business to any issues you may encounter along the way, you can rely on Hobson-Williams, P.C. for effective and diligent representation in all your business’ legal matters. The attorneys at Hobson-Williams, P.C. are skilled and knowledgeable in the area of business law and commercial transactions. Contact us at (718) 210-4744 for the quality representation that you deserve.