Security over Collateral

USA - GEORGIA
Alston & Bird LLP
CONTACT INFORMATION
Barbara Bryant
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309
1.404.881.7000
barbara.bryant@alston.com

1. Can assets be charged, liened and/or encumbered in your jurisdiction? Please

insert any exemptions, if any.
Georgia has adopted the Uniform Commercial Code (the UCC) as part of the Official
Code of Georgia Annotated (OCGA).* Article 9 of the UCC provides for the creation
or attachment, perfection, priority and enforcement of security interests in most personal
property collateral, including, without limitation, accounts, goods (such as inventory
and equipment) and general intangibles (such as copyrights, patents and trademarks).
Article 9 does not apply to a security interest that is subject to or preempted by a federal
statute to the extent that the federal law governs the rights of parties to, and third parties
affected by, the security interest. 11-9-109(c). It also does not apply, inter alia, when a
states statute expressly governs the creation, perfection, or priority of a security
interest. 11-9-109(c). Other instances of inapplicability are specified in 11-9-109(d),
and include, without limitation, certain assignments and liens. A security interest
attaches to collateral when security interest becomes enforceable against the debtor.
11-9-203(a). A security interest becomes enforceable when (1) secured party gives
value for collateral, (2) debtor has rights in the collateral and inter alia (3) debtor
authenticates a security agreement that contains description of the collateral. 11-9203(b). Subject to certain exceptions, in Georgia a security interest is perfected by filing
a UCC-1 financing statement with the Clerk of Superior Court, unless a security
interests is of the kind that is automatically perfected when it attaches. 11-9-310. * All
statutory references in this survey are to the OCGA, unless stated otherwise.
2. In your jurisdiction, under what circumstances may security arrangements be
subjected to choice of law and/or choice of forum clauses (does it matter, whether

the security itself is located abroad and/or governed by foreign law [e.g. a pledged
claim])? What is the market practice in your jurisdiction? Is there a treaty on this
in your jurisdiction, whether bilateral or multi-lateral?
Are there any
requirements for enforcement in your jurisdiction?
Under 11-1-105, the parties may choose the law of the jurisdiction by which they
desire their rights and duties to be governed as long as the transaction bears a reasonable
relation to a certain jurisdiction. Such choice of law would apply to the issues of
attachment, validity, characterization and enforcement of a security interest. The general
rule is that the local law of the jurisdiction where a debtor is located governs perfection,
the effect of perfection or nonperfection, and the priority of a security interest in
collateral. 11-9-301(1). However, the general rule is subject to several exceptions. For
example, a possessory security interest is perfected pursuant to the local laws of the
jurisdiction where collateral is located. 11-9-301(2). For farm products, while they are
located in a certain jurisdiction, perfection, the effect of perfection or nonperfection, and
priority of agricultural liens on the farm products is governed by the local law of the
jurisdiction in which such farm products are located. 11-9-302. For fixtures and
timber to be cut, the law of the jurisdiction in which such fixtures and timber to be cut
are located governs perfection and priority. 11-9-301(3). For a deposit account
maintained with a bank, the local law of that banks jurisdiction governs perfection, the
effect of perfection or nonperfection, and the priority of a security interest. 11-9304(a). However, the parties may choose the law of the jurisdiction by which they want
perfection and priority of security interests in deposit accounts to be governed, even if
that jurisdiction bears no relationships to the transactions or to the parties. 11-9304(b)(1). The parties may choose the law of other jurisdictions for other purposes, such
as enforcement of a security interest. For goods covered by a certificate of title,
perfection is governed by the local law of the jurisdiction under whose certificate of title
the goods are covered. 11-9-303.
3. In your jurisdiction, are floating charges or security over the overall assets of an
entity accepted, and if so in what terms?
As a general rule, a grant of a security interest in after acquired collateral (floating
lien) is permissible in Georgia. 11-9-204(a). A floating lien, however, is not
permissible to cover consumer goods, other than accessions, that are acquired more than
ten (10) days after the secured party gives value. 11-9-204(b)(1). Likewise, a floating
lien is not permissible to cover a commercial tort claim. 11-9-204(b)(2). It is
permissible for a secured party to have a blanket lien on all assets of the debtor. A
blanket lien is a type of lien that covers nearly all personal property of the debtor. The
description of collateral covered by a security interest is critical. The security agreement
must reasonably identify the collateral. 11-9-108(a). Using language such as all the
debtors personal property does not satisfy the requirement of reasonable identification
in a security agreement. 11-9-108(c). The collateral is reasonably identified if it is the
type or category of collateral defined in the UCC. On the other hand, a UCC-1 financing
statement sufficiently identifies the collateral that it covers simply by providing that it
covers all assets or personal property of the debtor. 11-9-504(b).
4. In relation to the following types of assets, please explain in your jurisdiction the
types of security that can be created or granted, if the security requires any type of
registration or perfection requirements, an estimate of cost (including applicable

taxes and any other duties/ costs) and timing for granting such security, and any
special considerations regarding the asset type:
(a) Aircraft;
Perfection of a security interest in aircraft, aircraft engines and certain aircraft
parts is governed by federal statutes that require recordation of a security interest
with the Federal Aviation Administration (FAA) in Oklahoma City,
Oklahoma. Aircraft must be registered with the FAA. The debtor must be the
registered owner of the aircraft and must be a US citizen. 49 U.S.C. 44102. A
secured party need not be a United States citizen, though it may not be the
owner of aircraft after foreclosure proceedings if it is not. FAA security
agreement requirements: a complete description of the aircraft; a statement that
the debtor is the registered owner; the debtors signature; in most cases, it must
be an original signed in ink; for a corporation, an individual signing must
indicate his title and be an officer, director, manager or attorney-in-fact; contain
conveyance of the security interest; definitions used therein and payment of a
filing fee. See The Federal Aviation Regulations 14 C.F.R. Parts 45, 47 and 49.
The United States is a party to the Cape Town Convention (Convention),
which requires filing of security interests in aircraft and aircraft engines with the
International Registry of Mobile Assets (Registry). Generally, the Convention
applies to an interest if the debtor relating to such interest is located in a
contracting state at the time of the creation of such interest and serves to provide
for internationally binding priority registrations. It is unclear whether
registration with the Registry precludes the necessity to file with the FAA. It is
recommended that a security interest be filed with both the FAA and the
Registry.
(b) Bank Accounts;
A security interest in a deposit account may be perfected by control. 11-9-314.
Control is the only method of perfecting a security interest in a deposit account
as original collateral. (Comment 5 to UCC 9-312). Control is achieved if the
secured party is the bank maintaining the deposit account; the debtor, the bank
and the secured party agreed that the secured party has the right to direct the
banks disposition of the funds without debtors consent; or the secured party
becomes the banks customer with respect to the deposit account. 11-9-104(a).
A security interest perfected by control remains perfected only while the secured
party retains control. 11-9-314(b). Filing of a UCC-1 financing statement is
not effective to perfect a security interest in deposit accounts, except with
respect to proceeds. See 315 (c)-(d). Unless the parties choose otherwise, the
local law of the banks jurisdiction governs perfection. 11-9-304(a). Priority of
conflicting security interests in the same deposit account is governed by 11-9327.
(c) Animals, Crops (in ground and severed) and Timber;
Goods means all things that are movable when a security interest attaches and
includes the unborn young of animals. 11-9-102(45). The same rules apply to
animals as to other goods in order for a security interest to attach. A security

interest attaches when it becomes enforceable. Enforceability, in turn, occurs

when secured party gives value, debtor has the rights in collateral that can be
transferred to a secured party and debtor has authenticated a security agreement.
See 11-9-203. Perfection occurs upon the filing of a UCC-1 financing
statement. 11-9-310. A security interest in animals, like in other goods, can
also be perfected by taking possession of such animals. 11-9-313(a).
Crops are a part of the definition of goods and the same rules apply to crops as
to other goods in order for a security interest to attach. For attachment,
enforceability and perfection discussion, see Animals above. A security interest
in crops, like in other goods, can also be perfected by taking possession of such
crops. 11-9-313(a). Specifically, under Georgia law, a perfected security
interest in growing crops for new value, given to enable the debtor to produce
the crops and given not more than three (3) months before the crops become
growing crops by planting or otherwise, takes priority over a prior perfected
security interest or agricultural lien if the prior interest or lien secures
obligations incurred more than six (6) months before the crops become growing
crops, even if the person giving new value has knowledge of such prior interest
or lien. 11-9-322.1.
Timber is also part of the definition of the goods. For purposes of secured
transactions, however, timber to be cut must be distinguished from the timber
that has already been cut. The procedure for attachment, enforceability and
perfection for timber that has been cut is the same as for the crops above.
However, to obtain an enforceable security interest in timber that is to be cut, the
security agreement must contain a description of the land where timber to be cut
is located. 11-9-203(b)(3)(A). Further, for timber to be cut, filing to perfect
must be in the office where a lien on real property would be filed; in Georgia with the Clerk of Superior Court in the county where timber to be cut is located.
(d) Equipment;
Equipment is a type of goods under the UCC. Hence, the same rules apply for
obtaining a security interest in, enforcing, and perfecting it in equipment as for
other types of goods. See Animals above.
(e) Intellectual Property;
Intellectual property such as copyrights, patents and trademarks are general
intangibles under the UCC. The rules for attachment and enforceability of a
security interest are: (1) value in exchange for collateral; (2) the debtor has
rights in the collateral; and (3) authentication by the debtor of a security
agreement that provides a description of collateral. 11-9-203. A secured party
must take different steps to perfect a security interest in copyrights, patents and
trademarks.
Copyrights: To perfect a security interest in copyrights, a secured party must
properly register a copyrighted work and record the security interest with the
U.S. Copyright Office. Filing a UCC-1 financing statement will not perfect a
security interest in a registered copyright. A security interest in unregistered

copyright can be perfected by filing a UCC-1 financing statement with the Clerk
of Superior Court. It should be noted, however, that if a debtor subsequently
registers a copyright with the U.S. Copyright Office, a secured party must
perfect its security interest in the copyright with the U.S. Copyright Office.
Otherwise, another party that records its interest, and, hence, perfects it with the
U.S. Copyright Office will take priority interest over the prior secured party.
Patents: To perfect a security interest in patents, a secured party must file a
UCC-1 financing statement with the Clerk of Superior Court. A secured party
may also file its security interest with the United States Patent and Trademark
Office, but such filing is discretionary. Failure to file a UCC-1 financing
statement at the state level, however, will leave the security interest unperfected.
Trademarks: To perfect a security interest in trademarks, a secured party must
file a UCC-1 financing statement with the Clerk of Superior Court. It is
recommended, however, that a secured party file with both the Clerk of Superior
Court and the United States Patent and Trademark Office. Moreover, it should
be noted that for a security interest in trademarks to have any value, a secured
party must also acquire a security interest in the goodwill and assets necessary to
produce the product the trademark represents.
(f) Inventory;
Inventory is a type of goods under the UCC. Hence, the same rules apply for
attachment, perfection and enforcement of a security interest in inventory as for
other types of goods. See Animals above.
(g) Leases;
Leases can be assigned by collateral assignment or by absolute assignment, with
revocable license back to debtor to exercise rights and collect rents, until default
under the secured debt. If debtor's interest is under a ground lease, a leasehold
deed to secure debt would be used (see Real Estate below). An assignment of
leases should be recorded in the real property records of the Clerk of Superior
Court of the county where the relevant real property is located, to establish
priority relative to any other assignees. Nominal per page recording fees will be
payable, but no taxes are imposed on recordation.
(h) Mineral Interests, including Hydrocarbons;
Mineral interests would fall under the definition of as-extracted collateral in
11-9-102(6). See Animals above for requirements of attachment and
enforceability of a security interest. The law that governs perfection and priority
in as-extracted collateral is that of the jurisdiction in which the wellhead or
minehead is located. 11-9-301(4). Security interests in minerals that are asextracted collateral are perfected by filing in the office designated for the filing
or recording of a mortgage on the real property. (Comment 5(d) to UCC 9301). In Georgia, such office is the Clerk of Superior Court at the county level
where the collateral is located.

(i) Promissory Notes and Chattel Paper;

a. Promissory notes that have been sold can be collateral that can be subjected to a
security interest. See Animals for attachment and enforceability of a security
interest. In a sale of a promissory note, a security interest is perfected upon
attachment. 11-9-309(4).
The two kinds of chattel papers are chattel paper and electronic chattel
paper and both are treated differently under the law. See 11-9-102(12), 11-9102(32). With electronic chattel paper, a security interest becomes enforceable
and attaches when a secured party gives value, a debtor has the rights in the
collateral and a secured party has control under 11-9-105. With chattel paper, a
security interest becomes enforceable when a secured party gives value, a debtor
has the rights in the collateral and a debtor has authenticated a security
agreement that provides description of the collateral. 11-9-203. With tangible
chattel paper, while such chattel paper is located in a given jurisdiction, the law
of that jurisdiction governs perfection. 11-9-301(3)(D). A security interest in
tangible chattel paper may be perfected by filing a UCC-1 financing statement.
11-9-312(a). It may also be perfected by taking possession. 11-9-313(a). A
security interest in electronic chattel paper may be perfected by taking control
and remains perfected only while the secured party retains control of the
collateral. 11-9-313(a)-(b). Filing of a UCC-1 financing statement is not
necessary to perfect a security interest in electronic chattel paper that is
perfected by control under 11-9-314. 11-9-310(b)(8).
(j) Real Estate;
The typical real property lien instrument is a deed to secure debt ( 44-14-60, et
seq.), which conveys security title to lender as collateral, and requires recording
in the real property records of the Clerk of the Superior Court in the county
where the real property is located in order to establish relative priority. 44-1463. Nominal per page recording fees apply. In addition, a deed to secure debt
must be recorded if the secured debt has a term of more than three (3) years,
which also necessitates payment of intangible recording tax ( 48-6-60, et seq.)
upon recordation. Intangible recording tax is assessed on amount of the secured
debt, and is capped at $25,000 in most instances, but the OCGA provides for
certain limited exemptions. A mortgage can also be used ( 44-14-30, et seq.)
and is subject to the similar recording requirements ( 44-14-35) and intangible
recording tax, but a mortgage is not the customary real property security
instrument.
(k) Receivables (credit rights under contracts or invoices);
A security interest may be created in receivables or accounts or payment
intangibles under the UCC. 11-9-203. Generally, a security interest in
accounts and payment intangibles may be perfected only by filing. (Comment 2
to UCC 9-313). However, an assignment of accounts or payment intangibles,
which does not by itself or in conjunction with other assignments to the same
assignee transfer a significant part of the assignors outstanding accounts or
payment intangibles, is perfected upon attachment. 11-9-309(2). Such

assignments are essentially out of the ordinary course of financing. A sale of

payment intangible is perfected upon attachment and filing is not required. 119-309(3).
(l) Rights under Contracts (excluding Receivables);
Rights under contracts are general intangibles under the UCC. The same rules
apply for attachment and enforceability of a security interest as for other general
intangibles under the UCC. 11-9-203. A secured party should file a UCC-1
financing statement to perfect a security interest in contract rights. 11-9310(a).
However, once a security interest has been granted, there are restrictions on
enforcing the security interest. To the extent that there is a prohibition against
assignments in the underlying agreement between the debtor and a third party,
such prohibition will be ineffective if it prohibits the creation, attachment, or
perfection of a security interest or create, inter alia, a default under the
agreement. 11-9-408(a). However, in order to enforce a security interest upon
debtors default, the secured party needs to obtain the third partys consent,
otherwise, the secured party is not entitled to enforce its security interest and the
third party need not recognize the secured partys security interest. 11-9408(d).
(m) Shares (in book-entry and certificate form and other securities);
b. Securities, which may be certificated or uncertificated, are a type of investment
property under the UCC. With certificated securities, a security interest attaches
and becomes enforceable when a secured party gives value, a debtor has the
rights in the collateral and, when a collateral is a certificated security in
registered form, the security certificate has been delivered to the secured party
under 11-8-301 pursuant to the debtors security agreement. 11-9-203(b)(C).
A security interest in certificated securities may either be perfected by filing,
control or delivery. See 11-9-312; 11-9-314; 11-9-313(a). In addition,
security interests created by brokers, securities intermediaries, or commodity
intermediaries are perfected automatically. 11-9-309(10)(11). A security
interest in certificated securities is perfected without filing or taking possession
for a period of twenty (20) days from the time a security interest attaches to the
extent that it arises for new value given under an authenticated security
agreement. 11-9-312(e). Control is achieved in accordance with the rules in
11-9-106. Delivery essentially means possession, either by the holder of a
security interest, by another person on behalf of the holder or, under certain
circumstances, a securities intermediary acting on behalf of the holder. See
11-8-301. While a certificated security is located in a jurisdiction, the local law
of that jurisdiction governs perfection. 11-9-305(a)(1). Perfection by delivery
remains valid until the debtor obtains possession of the security certificate. 119-313(e). It should be noted, however, that a security interest perfected only by
filing is subordinate to a conflicting security interest perfected by control or
delivery. 11-9-328(1); 11-9-328(5).

With uncertificated securities, a security interest attaches and becomes

enforceable when a secured party gives value, a debtor has the rights in the
collateral and the secured party has control of the collateral under 11-9-106
pursuant to the debtors security agreement. 11-9-203(b)(3)(D). A security
interest remains perfected by control until the secured party does not have
control and the issuer has registered or registers the debtor as the registered
owner of the uncertificated security. 11-9-314(c)(1)-(2). A security interest in
uncertificated securities may also be perfected by filing. 11-9-312(a). The
local law of the issuers jurisdiction governs perfection and priority of a security
interest in an uncertificated security. 11-9-305(a)(2).
(n) Vessels;
The federal government has established a national form of registration of vessels
that measure at least five (5) tons (subject to certain exceptions) and which are
wholly owned by a United States citizen. Vessels that are used in fishing
activities on navigable waters of the United States or in the Exclusive Economic
Zone, or used in coastwise trade must be documented absent an exemption. To
obtain a security interest in a documented vessel or a vessel for which an
application for documentation had been filed, one must follow the rules outlined
in the United States Code (USC). Ultimately, a secured party must obtain a
preferred mortgage on a vessel which equates to a maritime lien that provides
priority in event of default. See, inter alia, 46 USC 31343, 31325, 31322,
12111. A preferred mortgage is filed on a documented vessel with the United
States Coast Guard recording a secured partys security interest. A person
claiming a lien on a vessel covered by a preferred mortgage under USC
31322(d) must record and discharge the lien as provided by the state law of the
state where the vessel is titled. Thus, documented vessels are not exempt from
state jurisdiction and must comply with the laws of the state in which they are
operated. In Georgia, the Department of Natural Resources issues boat
registrations for the state. The owner must have a Georgia Certificate of Boat
Registration and a validation decal to show that the owner complied with state
requirements.
(o) Vehicles;
Vehicles are a type of goods under the UCC. The purpose for which a good is
used determines into which category that good falls, including, without
limitation, as inventory, as equipment or as a consumer good. See Inventory and
Equipment above, for discussion on creating a security interest in vehicles used
as inventory or equipment. The local law of the jurisdiction under whose
certificate of title the goods are covered governs perfection of the security
interest in such goods. 11-9-303(c). In Georgia, the creation and perfection of
a security interest in motor vehicles is governed by Chapter 3 of Title 40 of the
OCGA. See 11-9-311(a)(2). To perfect a security interest in a motor vehicle,
among other things, the secured party must obtain a certificate of title with the
secured partys name and address indicated on the certificate of title. The
procedure for obtaining a certificate of title is outlined in 40-3-51. Generally,
the security interest is perfected as of the date of delivery to the commissioner or
local tag agent of the existing certificate of title, if any, and an application for a

certificate of title is correctly filled out or a notice of security interest is noted on

the applicable forms. 40-3-50(b)(1). Otherwise, a security interest is perfected
at the time of its creation if the necessary documents are completed and
delivered within twenty (20) days thereafter. 40-3-50(b)(2).
(p) Business as an ongoing concern.
A secured party may have a blanket lien on all assets of the debtor. The security
agreement must reasonably identify the collateral. 11-9-108(a). Using
language such as all the debtors assets does not satisfy the requirement of
reasonable identification in a security agreement. 11-9-108(c). The collateral is
reasonably identified if it is the type or category of collateral defined in the
UCC. On the other hand, a UCC-1 financing statement sufficiently identifies the
collateral covered by providing that it covers all assets of the debtor. 11-9504(b). A secured party may also obtain a security interest in proceeds of the
collateral. Although a security interest in proceeds is perfected if the security
interest in the original collateral is perfected, it is advisable that both a security
agreements description of the collateral and a UCC-1 financing statements
description indicate that the secured party has a perfected security interest in the
proceeds of the collateral. See 11-9-315.
Please also see responses to Question 3.
5. Please explain briefly for each type of assets the procedure for enforcement
(judicial and extra-judicial). Is it possible to enforce security governed by another
jurisdiction? If yes, what is the procedure?
Upon default, a secured party can enforce its security interest in accordance with the
rights afforded by the UCC and the parties agreement. 11-9-601(a). A secured party
may reduce a claim to judgment, foreclose, or enforce its rights by any available judicial
procedure. 11-9-601(a)(1)-(2). These rights are cumulative and may be exercised
simultaneously. 11-9-601(c). Generally, a secured party may demand payment or
otherwise demand performance. 11-9-607. A secured party may also take possession
of the collateral and dispose of it in commercially reasonable manner by, without
limitation, public or private proceedings, at any time and place and on any terms. 119-610(b). Reasonable notification of disposition, sent in a commercially reasonable
manner and at least ten (10) days before the earliest time of disposition, is required.
11-9-611; 11-9-612(b). A secured party must use judicial process if enforcement will
breach the peace. 11-9-609(b).
6. Can a trustee or security agent be used in your jurisdiction, or must security be
granted in favour of all lenders?
An agent can hold a security interest in collateral for the benefit of the other lenders.
The relationship between the agent and the lenders is governed by agreement of the
parties.
7. In bankruptcy or insolvency scenarios, what are the suspect periods, is clawback possible, and what other types of rights (tax debts, employees, etc.) have
preference over security granted?

Outside of bankruptcy, while states laws are different, creditors typically have four (4)
years to bring a fraudulent transfer action. In the bankruptcy context, a trustee may
avoid a transfer that is either actually or constructively fraudulent that occurred within
two (2) years before the petition date, Bankruptcy Code 548, but may also bring an
action pursuant to state law, which can extend the look-back period. Additionally, the
Bankruptcy Code provides that payments made to creditors within ninety (90) days
prior to the petition date are presumed preferential and subject to avoidance by a debtor
or trustee (the look-back period for insiders of the debtor is one (1) year). Bankruptcy
Code 547. Claw-back agreements are generally enforceable to reduce a creditors
preference exposure. Claims secured by liens on property generally have priority over
all other claims, with the lone exception being tax liens in some jurisdictions.
8. In your jurisdiction, can borrowers or guarantors subordinate their claims and
if so in what terms?
Subordination agreements are enforceable in bankruptcy to the same extent they are
enforceable under applicable nonbankruptcy law. Bankruptcy Code 510(a).
Accordingly, borrowers and guarantors are generally bound by prepetition
subordination agreements in bankruptcy. Additionally, a debtor or trustee can
subordinate claims arising from the purchase or sale of a security (or from the rescission
of such a purchase or sale). Bankruptcy Code 510(b). Such claims are subordinated to
all claims or interests that are senior or equal to the claim or interest represented by the
subject security. The exception is that if the subject security is common stock, the claim
has the same priority as common stock. Also, the court may invoke the principles of
equitable subordination to subordinate part or all of an allowed claim or interest.
Bankruptcy Code 510(c).
9. What are the consequences of a transfer, assignment or novation of an
underlying credit in your jurisdiction (is new security necessary, is the security
automatically transferred, etc.)
A secondary obligor acquires the rights and becomes obligated to perform the duties of
the secured party after the secondary obligor receives from the secured party an
assignment of a secured obligation, receives a transfer of collateral from the secured
party and agrees to accept the secured partys rights and assume its duties, and is
subrogated to the secured partys rights with respect to collateral. Such assignment,
transfer, or subrogation is not a disposition of collateral after default and relieves the
secured party of further duties. 11-9-618(a)-(b). New security is unnecessary upon
assignment. Rather, an assignment of rights and sometimes delegations of duties occurs.
A filing of an assignment is not required to ensure the perfected status of the security
interest against creditors and transferees of the original debtor. But failure to file keeps
the assignor as the secured party of record authorized to file effective amendments to
financing statements. 11-9-514.
10. Can you have on top of a security in your jurisdiction, another layer consisting
of an assignment of the collateral concerned conditional upon default by the
debtor?

It is permissible to have a first and a second security interest or lien on the same
collateral. The secured party that is first to record and perfect its security interest in
accordance with the applicable rules discussed above has priority over the other secured
partys security interest. Equal priority is governed by agreement of the parties.
(Comment 6 to UCC 9-610).
11. Are step-in rights lawful in your jurisdiction or does any action to take control
require the creditors to go through a court process?
A court process is not required for the secured party to take control of the collateral
upon default as long as the secured party does so without breach of the peace. 11-9609(b). After the debtor defaults, a secured party may take possession of the collateral.
11-9-609(a)(1). In the case of equipment that would not be reasonable to remove, the
secured party may render the equipment unusable and dispose of such in accordance
with applicable rules on a debtors premises. 11-9-609(a)(2). Further, if the debtor and
the secured party agree, and in any case following default, the debtor is obligated to
assemble the collateral and deliver it to the secured party at the agreed place which is
reasonably convenient to both parties. 11-9-609(c). Please also see responses to
Question 5.