Secured Lending to Foreign Borrowers: UCC Perfection, Enforcement Risks, and Conflict-of-Laws Issues

Description

Cross-border lending activity is on the rise, increasing the number of loans made to foreign borrowers or U.S. borrowers with foreign guarantors and often secured by foreign collateral. A secured lender in the United States entering into a transaction with one or more foreign obligors must comply with the provisions of the UCC to perfect its security interests in the assets of foreign obligors.

UCC Section 9-307 sets out the rules for determining the "location" of U.S. and foreign obligors based on entity type, the jurisdiction of formation, and place of business. U.S. secured creditors typically file UCC financing statements in the formation state of domestic obligors. Still, Section 9-307(c) provides an exception to the general rule for certain foreign obligors. A foreign obligor whose place of business or chief executive office is located in a jurisdiction without a UCC-style public recordation system is deemed "located" in Washington, D.C.

In addition to the UCC analysis regarding rules for perfecting security interests in foreign obligors' assets, secured lenders in cross-border transactions should also consider potential enforcement risks and conflict-of-laws issues. A U.S. secured lender cannot assume that a foreign court would recognize the attachment, perfection, or priority of a security interest created under the UCC. Under applicable conflict-of-laws principles for most tangible collateral, the "location of the debtor" rule only governs perfection and not the effect of perfection or non-perfection or the priority of security interests.

Listen as our authoritative panel discusses the nuances of UCC perfection in cross-border transactions. The panel will also discuss the application of the UCC in foreign jurisdictions, including conflict-of-laws and enforcement issues to consider.