Home New Cases Eagle Manufacturing Seeks to Avoid a Lien, Says Security Interest Filing Was Not Discoverable By a Standard Search

Eagle Manufacturing Seeks to Avoid a Lien, Says Security Interest Filing Was Not Discoverable By a Standard Search

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February 8, 2021, Southern District of Minnesota -  Plaintiff Eagle Manufacturing, Inc. as debtor-in-possession files an action against the United States Small Business Administration (“SBA” or “Defendant.”), seeking to recover or avoid a lien of the Defendant, alleging that it is unperfected. 

As alleged in the complaint, the Debtor applied for and received a $150,000 Economic Injury Disaster Loan (EIDL) from the SBA. SBA apparently filed a UCC-1 Financing Statement with the Minnesota Secretary of State’s office to properly perfect its security interest in the Debtor’s assets. However, while conducting its due diligence, the Debtor could not find any security interest in name of SBA in public records in the Minnesota Secretary of State’s office using standard search. As a result, the Debtor neither listed its SBA’s EIDL debt as unsecured in its schedules filed with the Bankruptcy Court nor identified the SBA as a holder of cash collateral.

The complaint further asserts that after SBA filed its proof of claim, the Debtor discovered that the SBA did file a UCC-1 Financing Statement with the Minnesota Secretary of State’s office. However, it listed the Debtor’s name as “Eagle Manufacturing, Inc. f/k/a Northwest Manufacturing, Inc.”, which caused the SBA’s UCC-1 filing to be non-discoverable under the Minnesota Secretary of State’s search criteria for a standard search.

In its complaint, the Debtor argues that in UCC parlance, when a financing statement is filed under article nine of the Uniform Commercial Code (Minnesota Statutes 336.9-101 et. seq.) and the said security filing is undiscoverable by a standard search using the correct legal name of the debtor, such a financing statement is deemed “seriously misleading” and results in non-perfection of that security interest. 

Thus, the Trustee requests that the court must enter judgment in its favor determining the lien of the SBA in all of the Debtor’s assets is unperfected and avoiding the unperfected lien of SBA and preserving that lien for the benefit of the estate according to 11 U.S.C §§ 544(b), 550 and 551.

Jones & Associates