In film finance, lenders use the Uniform Commercial Code (“UCC”) to secure loans against the borrower’s assets, including the copyright to the film, distribution rights, and other intellectual property. By filing a UCC financing statement, the lender can perfect its security interest and establish priority over other creditors in the event of a default. But that begs the question: what’s the UCC, what are the challenges related to using this tool and how can it effectively be used in film finance?
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What is the UCC?
The Uniform Commercial Code is a standardized set of business laws that regulate financial contracts and transactions employed across different states. As it relates to financing and lending, Article 9 of the UCC governs secured transactions of personal property, promissory notes, and security interests. A UCC lien, also known as a UCC filing or financing statement, is a form that a creditor files to provide notice that they have an interest in the property of a debtor, whether that property is personal or business. The overall purpose of a UCC lien is to allow a creditor to claim collateral on financing with a debtor; the creditor will have the right to the property in the lien until the financial obligation has been repaid by the debtor and the lien is released.
UCC Liens in Film Finance
When a lender provides financing for a film, the borrower will typically grant the lender a security interest in the project’s intellectual property. The lender will then file a UCC financing statement with the secretary of state in each state where the borrower conducts business. This filing gives notice to other creditors that the lender has a security interest in the borrower’s assets. If the borrower defaults on the loan, the lender can foreclose on the collateral and sell it to recover its investment. The proceeds from the sale will be used to pay off the loan and any other outstanding debt.
Challenges of Using UCC Liens in Film Finance
There are a few challenges associated with using UCC liens in film finance. First, copyright law requires that a copyright be registered with the US Copyright Office before a security interest can be perfected. This can be a problem for films that are still in production, as the copyright may not yet have been registered. Second, UCC liens are only effective against creditors who have knowledge of the lien. This means that if a creditor files a lien on the same assets after the lender has filed its UCC financing statement, the lender may not have priority. Effective Use of UCC Liens in Film Finance To use UCC liens effectively in film finance, lenders and their counsel should take the following steps:
- Ensure that the borrower has registered the copyright to the film with the US Copyright Office. If the copyright has not yet been registered, the lender should consider filing a UCC financing statement against the unregistered copyright.
- Carefully draft the UCC financing statement to accurately identify the collateral. The collateral description should include everything associated with the copyright, from the screenplay to the film reels/dailies.
- File the UCC financing statement with the secretary of state in each state where the borrower conducts business.
- Monitor the public record and regularly search for any liens that may be filed against the borrower’s assets after the lender has filed its UCC financing statement.
By following these steps, lenders can help to protect their interests in film finance transactions and utilize this valuable tool in debt financing.
If you have any questions about the use of UCC financing statements and/or are considering debt financing for your next project, don’t hesitate to reach out to the BANKABLE team to discuss your options!
As CEO/Owner of BANKABLE CONSULTING, INC., Chiquita supports content creators, with a focus on filmmakers of color, and advises on options to finance the creator’s projects. Specifically, she consults on project’s global incentive alternatives and is “the plug” connecting filmmakers to companies that lend against production incentives, distribution agreements and other production collateral.
