The United States District Court for the Western District of Wisconsin recently held that a creditor did not perfect its security interest in the debtor’s property because the creditor inadvertently included a space in the debtor’s name in its UCC financing statement.  See United States Sec. & Exch. Comm’n v. ISC, Inc., 2017 WL 3736796 (W.D. Wis. 2017).  In the case, the creditor filed a UCC financing statement with the Wisconsin Department of Financial Institutions (“DFI”) regarding an interest it had in certain assets of the debtor, ISC, Inc.  However, the creditor accidentally included a space between “Inc” and the period, naming the debtor as “ISC, Inc .”  After the debtor encountered financial issues, a receiver was appointed to distribute the debtor’s assets.  In doing so, the receiver searched the DFI records for any financing statements containing “ISC, Inc.” and the creditor’s financing statement did not appear.  Accordingly, the creditor was deemed an unsecured creditor who could only be paid 66% of its $169,437.72 claim under the receiver’s plan.  The creditor filed an objection, arguing that it properly perfected its security interest and, as a secured creditor, was entitled to 100% of its claim under the plan.

The Court denied the creditor’s request.  Under Wisconsin’s UCC, a financing statement is effective even if it contains minor mistakes, so long as the mistakes do not render it “seriously misleading.”  Wis. Stat. Ann. § 409.506.  “[A] financing statement that fails sufficiently to provide the name of the debtor . . . is seriously misleading.”  Id.  Although the statute provides a safe harbor for an incorrect name “if a searcher can nonetheless find it in the ordinary course of a search,” the searcher here did not find the creditor’s financing statement in his search.  While the Court acknowledged that it had sympathy for the creditor and that receiver would have located the financing statement if he simply had searched “ISC,” that was not the standard under the UCC and the creditor was deemed unsecured.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.