Does your business file UCC financing statements? If so, then you should know about the newest amendment to the Illinois Uniform Commercial Code. When properly executed, a financing statement secures a creditor’s interest in a debtor’s assets and gives the creditor priority status over unsecured creditors. The new statute, 810 ILCS 5/9-501.1, establishes penalties for those who file false financing statements. It also gives the Secretary of State the authority to conduct investigations into allegations of false filings and to terminate those filings when evidence shows the document was not authorized by the UCC, was not related to a valid financial transaction, or was filed with the intent to harass or defraud the purported debtor.
Under the new law, a debtor will no longer have to go straight to court to prove that a filing was incorrect or fraudulent. Instead, the debtor can file an affidavit with the Secretary of State describing any alleged defects with the filing. Upon receipt of the affidavit, the Secretary of State must send written notice to the secured lender and provide the lender with 30 days to supply its own evidence to refute the claims. If the Secretary of State determines that the record was filed in violation of the statute, it can terminate it.
The Secretary of State’s actions can be appealed to a court, and if the Secretary’s decision is reversed, the document at issue would be re-filed with its priority date retroactive to the original date of filing.
The law provides that any person found to have violated the new law is guilty of a Class A misdemeanor for a first offense, and a Class 4 felony for subsequent offenses. The guilty party would also be civilly liable to each injured person for the larger of actual damages or up to $10,000 in lieu of actual damages, plus attorney’s fees, court costs, investigative expenses and, in the court’s discretion, exemplary damages set by the judge or jury.
Be aware that the Secretary of State is not required to take action. In instances where there is no clear fraud or mistake in the filing, or where the issues are, or may become, complex, the Secretary of State may pass the responsibility to the court system rather than make the decision whether to terminate a filing.
The attorneys at DeBlasio Law Group are experienced business attorneys. To schedule an appointment to speak with one of our attorneys, call us at (630) 560-1123 or visit our website at www.DGLLC.net/contact. We are here to help.