Meaning
Legal standard under the Uniform Commercial Code that determines how a secured party perfects a security interest in specific types of collateral, such as deposit accounts or electronic chattel paper, without filing a financing statement. Achieving UCC Article 9 control gives the secured party the right to direct the disposition of the funds or assets in the account. This method provides the highest level of protection available for financial assets.
Collateral Perfection
Deposit account control agreements establish a tripartite contract between the debtor, the secured party, and the bank. Through this contract, the bank agrees to comply with instructions from the secured party regarding the funds without further consent from the debtor. This mechanism ensures that the security interest is perfected the moment the agreement is executed.
Creditor Priority
Perfected interests obtained through control take priority over interests perfected by filing. When multiple creditors have claims, the party with UCC Article 9 control receives distribution priority during a default or liquidation. This priority rule encourages lenders to secure direct access to the accounts rather than relying on general filings, reducing the time needed to recover outstanding debts during insolvency.
Operational Implementation
Securing control requires careful coordination between the lender and the account holder’s depository bank. This coordination prevents the debtor from transferring funds during a default.
