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WHAT'S IN A (COMPANY) NAME?

So you've changed your company's legal name. If you haven't advised your secured creditors, you may have unwittingly brought your company into breach of the terms of trade or other security agreement that the secured creditor supplies or advances money under.

On the other hand, if you are a secured creditor and you become aware that your debtor has changed its name, if you don't update your financing statement on the Personal Property Securities Register, then you may lose priority to other creditors.

Why is it so important to secured creditors to be advised of a client company's name change?

A secured creditor will usually "perfect" its security agreement on the Personal Property Securities Register by registering a financing statement against its debtor and the collateral. The law underpinning the PPSR requires accuracy of the information inputted into the PPSR so that searchers of it can rely on the information.

If a secured creditor becomes aware that a debtor changes its name, a secured party then has 15 days to change its financing statement to reflect the debtor's name change. If the secured creditor does not do this, then the financing statement may be subordinated to the security interest of another secured creditor that registers on the PPSR before the original secured creditor registered the change of name.

If your company changes its name, then if you don't notify your secured creditors, it its most likely a breach of your company's terms of trade or other security agreement. Most security agreements will contain a provision requiring a client company to advise of a name change in advance of the such name change being effected.

Accuracy is essential

In general, accuracy of information when registering a financing statement is essential otherwise the financing statement could be found to be invalid. If you are dealing with a registered company, then you must insert the legally registered company name and its incorporation number.

If you are dealing with an individual, then you must verify the person's legal name and date of birth by checking their passport, driver licence or birth certificate. Do not register financing statements or enter into contracts with a business trading name. The legal name of the debtor must always be used to avoid legal complications if you need to enforce against the debtor.

Written by Nicola Scott at 13:00

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