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Despite concerns, it’s not realistic to expect the Connecticut secretary of state’s office to change its procedures by July 1 to accommodate Revised Article 9, said Ernest M. Lorimer, chairman of the Connecticut Bar Association’s business law section. Failure to enact changes to Article 9 of the Uniform Commercial Code this year would not only throw Connecticut laws out of whack with at least 37 other states; it would push up transaction costs, and perhaps even discourage out-of-state lenders from backing local ventures, say corporate finance lawyers vigorously opposing a bill that would implement the changes as of Feb. 1, 2002. Ideally, the legislation, Senate Bill 1226, would take effect July 1 when the revisions to the UCC are set to become law throughout most of the nation. But realistically, lawyers lobbying the General Assembly say, under the best-case scenario currently on the table, the changes to Article 9 would be implemented as of Oct. 1 in order to give the secretary of state’s office adequate time to adapt its forms and computer systems to the new laws. Still, a three-month delay, said commercial law specialist Thomas J. Welsh, would be infinitely preferable to a February 2002 effective date, or, worse yet, failure by state lawmakers to adopt the changes at all by June 6, the end of the current legislative session. LITIGATING OVER PERFECTION The latter scenario would be a “disaster,” said Welsh, a member of the Connecticut Bar Association’s commercial law and bankruptcy section, who is leading the push to amend the date the legislation would take effect. As of press time, 40 states had adopted the changes to Article 9, the section of the UCC that deals with secured transactions. The revisions in all but three of those states will take effect July 1, as intended by the National Commissioners on Uniform State Laws, which drafted the changes. (In Mississippi, Alabama and Florida, the new laws will go on the books on Jan. 1.) Similar legislation is still pending in Massachusetts and New York. Secretaries of state in both states, however, are backing July 1 implementation dates, according to Welsh, of Meriden, Conn.’s Brown & Welsh. Attorneys’ concerns lie with the different set of rules out-of-state corporations doing business in Connecticut would be subject to during the period between July 1 and the date the UCC revisions take effect here. Under the current Article 9, in bankruptcy and commercial-litigation disputes, the applicable law for testing the perfection of ordinary goods is the law existing in the jurisdiction where the collateral is located. The proposed revisions, however, call for the state in which the debtor entity was formed to have jurisdiction over such matters. With two different systems at their disposal, “the debtor, or a creditor with an intervening lien, such as the Internal Revenue Service, could shop for the most advantageous forum to file a bankruptcy proceeding or otherwise litigate the perfection issue,” Welsh warned in a May 16 memo to Connecticut’s legislative leaders. “This strikingly different treatment will create additional preference risks for lenders … and other parties in Connecticut on whom the [s]tate is relying to maintain its economic health. The result,” Welsh wrote, “will be increased scrutiny and requirements for review by legal counsel of every such transaction involving Connecticut collateral or businesses.” Companies registered in Connecticut doing business in states where the revised Article 9 was in effect also could get caught up in a “never-ending loop,” Welsh noted in the memo. In a Revised Article 9 state, the law would look to Connecticut law to determine perfection. But Connecticut law, relying on old UCC provisions, would look to the state in which the goods in dispute are located. “The clear solution,” Welsh predicted, “will be for lenders and other secured parties to require, as a condition for financing, that the debtors redomesticate their corporations out of … Connecticut and into a jurisdiction that has adopted Revised Article 9.” LETTING THE PUBLIC KNOW Such concerns, however, compete with the time it will take the secretary of state’s office to prepare for the changes. “It isn’t realistic to think that you can tell [secretary of state officials] on Memorial Day that, by the Fourth of July, they will have to change all their procedures,” conceded Ernest M. Lorimer, chairman of the CBA’s business law section and a partner at Stamford’s Finn Dixon & Herling. “It’s not just computer changes,” maintained Deputy Secretary of State Maria M. Greenslade. It’s also “very important … that the general population knows what is going on, so they can make filings that are appropriate” and correspond with the changes under consideration. State Rep. James W. Abrams, D-Meriden, who is overseeing a task force examining the issue, said the secretary of state’s office also needs time to revise the online library of records that it maintains. Most states, he added, don’t have such records available on the Internet. “A less than six-month delay [in implementing the changes to Article 9] would not be a serious problem,” Abrams insisted. As of late last week, S.B. 1226, which cleared the Judiciary Committee in April, was still pending in the state Senate. Assuming passage in the Senate, the bill would have to gain House approval and the governor’s signature.

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