CHANGES IN THE Uniform Commercial Code filing system have been under study by the New Hampshire secretary of state's office, in connection with legislation that is being introduced this session and will probably become effective July 1, 2001.

The new law, known as UCC Revised Article 9, will make substantial amendments to Article 9 of the Uniform Commercial Code. That article governs the attachment and perfection of security interests in personal property and provides for the filing of UCC financing statements by lenders to give notice of their security interests in borrowers' property.

Under the present system, UCC financing statements affecting real property ("fixture filings") are filed with the registries of deeds. Those covering personal property are usually filed in duplicate with both the secretary of state's office and town and city clerks. Under recent legislation (1998 Laws, Ch. 382, and 2000 Laws, Ch. 262), a change in the filing system for personal property was scheduled to go into effect late this year. The secretary of state's office was to convert its paper files to an electronic database and all future filings were to be made not with that office, but only with those town and city clerks who elected to purchase the equipment necessary to transmit all filed financing statements electronically into the new database.

A committee organized by the secretary of state's office undertook a study last summer of some possible alternatives to the new filing system. The committee was composed of representatives from the legislature, the secretary of state's office, lenders, lawyers (including this author), municipal clerks and companies that provide records-searching services.

The committee completed its work in November. Based on its conclusions, the secretary of state's office is recommending that the legislature modify the new system - currently scheduled to go into effect this year - by accelerating the changeover date to the new electronic database to July 1, 2001, and by providing that all financing statements covering personal property will be filed directly with the secretary of state's office, not with any town or city clerks. All municipal clerks would continue to perform ancillary filing and search services and would help in the consolidation of other lien filing information in the secretary of state's database. The clerks would continue to share in the UCC filing fees received by the secretary of state's office as compensation for the ancillary services and lien consolidation assistance.

One of the main reasons for the recommendation to consolidate UCC filing in the secretary of state's office was the committee's belief that New Hampshire should get in step with the many states that have already adopted Revised Article 9 and will put it into effect July 1, 2001. It was determined that NH cities and towns were not going to be able to procure the necessary equipment, software and training in time to meet a July 1 implementation date. The secretary of state's office, however, appeared able to meet that deadline. Another reason for the recommended change was that the proposed electronic networking of cities and towns could have resulted in problems with the timely filing of UCC financing statements in the event of periodic system failures.

If the new law is enacted as anticipated after July 1 of this year, no new financing statements will be filed with cities or towns, but the prior filings will remain effective until they expire (normally five years from filing). All new financing statements, and all amendments and continuations in regard to old financing statements, will be filed only with the secretary of state's office (except filings affecting real estate, which will continue to be recorded at the registries of deeds).

Also, under Revised Article 9 the proper state for filing will change for some debtors. For example, after July 1 the proper state for filing UCC financing statements, amendments and continuations for a corporate debtor will be the debtor's state of incorporation.

At some time after the filing system changes over, the secretary of state's office expects to make its new electronic database available to the public for remote online searches via the Internet. After registering and paying a subscription fee (probably on an annual basis), lenders, lawyers and others will be able to search the central database from their offices for debtor information and download copies of financing statements and attachments electronically. It is also envisioned that the system eventually will be further improved to accept direct electronic filings of new financing statements from lenders and other interested parties.

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