Credit Law, Security Instruments, and Professional Ethics
Security instruments
UCC Article 9 governs security interests in personal property. Attachment requires value, a debtor's rights in the collateral, and a security agreement. Perfection usually requires a UCC-1 financing statement filed in the debtor's state of organization. Priority generally follows first-to-file or first-to-perfect, with exceptions such as purchase-money security interests (PMSI). A PMSI in inventory must be perfected before the debtor receives possession and requires notice to conflicting inventory finishers to gain priority. Real property liens include mechanics liens and judgment liens; a mechanics lien deadline is statutory and strict.
Bankruptcy and guarantees
The automatic stay stops collection. Preferences: payments to a creditor within 90 days before filing (one year for insiders) may be recovered if the debtor was insolvent and the creditor received more than in a Chapter 7. A guarantee is only as good as the guarantor's financial capacity and the documentation. Letters of credit and standby letters of credit are separate undertakings.
Ethics
NACM's Code of Ethics emphasizes honesty, integrity, confidentiality, fairness, compliance with law, and avoiding conflicts of interest. Credit professionals must protect customer financial information and refuse improper inducements.
Worked example
A supplier sells inventory on credit and files a UCC-1 on day 40. A bank had perfected a floating lien on inventory on day 1. The supplier's filing is later, so the bank has priority unless the supplier took a PMSI and gave the required notice before the debtor received the goods. Without that, the supplier is an unsecured creditor for priority purposes.
Traps
Missing UCC filing or continuation deadlines; assuming a guaranty is automatically enforceable; ignoring the preference period; violating the automatic stay; and disclosing customer financial data improperly.