How is a security interest created through the assignment of accounts receivable and contract rights?
Generally, the sale or assignment of rights in accounts, payment intangibles, or promissory notes (account) creates a security interest for the individual to whom the account is assigned. This attaches the security interest to the account. Article 9 requires that an individual file a financing statement to perfect a security interest in an account. There are, however, two exceptions that allow the assignee of the account to perfect a security interest without publicly filing a financing statement.
Single Account to Satisfy a Debt?
The assignment of a single account in satisfaction of a preexisting debt;
Example: ABC Inc., transfers and account payable to 123 Inc., in satisfaction of a debt that ABC owed to 123. While ABC maintains control over the account payment, 123 has a security interest in the account that is perfected without filing a financing statement.
Automatic Perfection?
The assignor transfers a limited number of accounts to the assignee that does not constitute a significant number of the assignors accounts.
Note: For automatic perfection to apply in this situation, the transferred account cannot constitute a significant percentage of the outstanding accounts of the transferor and the recipient cannot regularly take assignment of accounts in satisfaction of debts.
