The debtor, a Delaware corporation, purchased broadcast companies in Nevada and New Mexico. The creditor extended the debtor four loans to purchase the companies, which were secured by the debtor’s real property and personal property in New Mexico and Nevada. The creditor filed financing statements in New Mexico and Nevada but failed to do so in Delaware. Subsequently, the debtor filed for Subchapter V Chapter 11 bankruptcy and listed the creditor “as a secured creditor in both real and personal property.” However, the Subchapter V trustee objected to the debtor’s proof of claim for personal property, arguing that the debtor was a Delaware corporation, and the creditor must have filed a financing statement in Delaware to perfect its security interest in personal property. The debtor argued that while Delaware law governed perfection, its security interest was perfected because the financing statement was filed “in the state where the personal property was located.” The bankruptcy court ruled in favor of the creditor and allowed its claim, and the trustee appealed.
In Shapiro v. Newtek Small Bus. Fin., LLC (In re Glob. One Media, Inc.), 667 B.R. 878 (B.A.P. 9th Cir. Apr. 2, 2025), the bankruptcy appellate court reversed and held that the creditor did not have a perfected security interest in the debtor’s personal property. First, the court noted that under the revised UCC, the focus for filing purposes shifted “from ‘location of goods’ as the controlling factor to ‘location of the debtor.’” 8 Quinn’s UCC Commentary & Law Digest § 9-307(a)(3) (Rev. 2d ed.). Further, the debtor was undisputedly “located” in Delaware. The creditor argued that “tangible documents, goods, instruments, or money located in Nevada or New Mexico” is governed by the law in those states pursuant to 6 Del. C. § 9-301(3)(C). However, the court disagreed, stating that “where the collateral is located governs the ‘effect of’ perfection…and the ‘priority of’ a nonpossessory security interest in collateral, that jurisdiction’s law does not govern ‘perfection’ itself.” Thus, Delaware law governs perfection, and the proper office to file a financing statement in is the Delaware Secretary of State. 6 Del. C. § 9-501(a)(2). Consequently, the creditor did not file its financing statement in Delaware, its security interest in the debtor’s personal property was unperfected, and it only had an unsecured claim. Therefore, the court remanded the case to the bankruptcy court to “determine the amount of the unsecured portion of [the debtor]’s claim.”
By Hayden Mariott, [email protected]
Edited By Nura Elhentaty, [email protected]