Understanding the Basics of International Lien Searches

What this is: A lien is a legal right or interest that a creditor has in a property belonging to another person (debtor) as security for a debt or obligation. It essentially serves as a form of collateral that gives the creditor the right to take possession of the property or have it sold to satisfy the debt if the debtor fails to fulfil their obligations.

What this means: Lien searches are a critical component of due diligence for several reasons, primarily revolving around risk management, legal compliance and litigation avoidance. It helps in uncovering hidden liabilities, identifying encumbrances on titles and ultimately protecting the interests of all parties involved in the transaction.

Different Types of Liens Against a Company

Contractual/Consensual Liens (Secured Transactions)

These include offering movable or immovable property as security for a financing transaction.

Statutory Liens

These include tax liens or judgement liens, among others, against a company or an individual to pay a statutory liability.  

How Are Consensual Liens/Secured Transactions Recorded and Searched in the US?

In the US, secured transactions with personal property and/or fixtures as collateral are governed by Article 9 of the Uniform Commercial Code (UCC). Article 9 sets forth the legal rules for creating, perfecting and enforcing security interests in personal property and/or fixtures, which are interests that a lender (secured party) holds in a debtor’s assets as collateral for a loan or other obligation. Generally, secured parties file UCC1 “financing statements” to perfect security interests in personal property and/or fixtures and establish priority over other subsequent secured parties.

What is the Purpose of a UCC Search?

By conducting a UCC search, parties involved in lending, borrowing or asset transactions can make informed decisions and protect their financial interests. Most UCC filings are recorded at the state level by the Secretary of State’s office. In some cases, UCC filings can also be found at the county level, especially for fixtures and other specific types of collateral related to real property. Many states provide online databases where you can search for UCC filings. There are several third-party services that offer UCC search capabilities. These services compile data from multiple states and can provide more comprehensive search results.

The primary purpose of a UCC search is to reveal any existing consensual liens/security interests in a debtor’s assets, which is crucial for lenders, creditors and other interested parties to assess the risk associated with extending credit or entering into financial agreements.

It is important to remember that UCC searches are specific to the US and are not applicable or available in other countries because “UCC” or “Uniform Commercial Code” is a US legislation. However, other countries have their own systems and registries for handling commercial transactions and liens, which are comparable to UCC filings in the US.

How Are Secured Transactions Treated Internationally?

The handling of internationally secured transactions varies significantly from one country to another.

Canada

Canada has a similar system known as the Personal Property Security Act (PPSA). PPSA searches are available through provincial registries.

Australia

The Personal Property Securities Register (PPSR) is used in Australia. Lien searches can be conducted online through the PPSR website.

United Kingdom

The UK uses Companies House and various asset registration systems, such as the Land Registry for property and the Intellectual Property Office for IP assets. Security interests (charges) are registered with Companies House for company assets, and there are different registration systems for other types of assets. A mortgage or charge search at the Companies House will reveal all outstanding charge filings against UK companies. 

New Zealand

The PPSR in New Zealand allows for the registration and search of security interests.

South Africa

The Companies and Intellectual Property Commission (CIPC) handles similar registrations and searches for commercial transactions.

China

China’s system for secured transactions is governed by several laws, primarily the Property Law of the People’s Republic of China (2007) and the Civil Code (2021), which provide rules for the creation, perfection and enforcement of security interests. The system includes different types of secured interests, such as mortgages, pledges and liens.

European Union

Different member countries have their own national systems. For example, France has the Registre du Commerce et des Sociétés (RCS), Germany has the Handelsregister and Italy has the Registro delle Imprese. Secured transactions laws vary significantly between member states, and there is no single codified system like the UCC. Countries rely on a combination of civil codes and specific secured transactions laws. Civil law liens are different from common law liens in principle and how they are enforced.

These systems are not identical to the UCC but serve a similar purpose in securing interests in personal property and facilitating commercial transactions. If you need to perform a search in a specific country, you should look for that country’s registry or equivalent system.

How Are Statutory Liens Searched in the US?

In the US, typically, statutory liens (particularly tax liens) have priority over consensual liens and can attach both personal property and real property. Tax liens can be filed at the federal, state, county or municipal level, depending on the type of tax and the type and location of the property. Federal and state tax liens are filed either at the state or local level or both, depending upon the rules of the particular state.  

Similarly, depending on the state and the type of collateral involved, judgment liens are filed either at the state or local/county level.  

In addition to federal and state tax liens and judgement liens, often searchers will also include pending litigation and bankruptcy searches as part of their due diligence. Pending litigation searches are conducted at the courts (either federal or state court or both depending on the scope of the due diligence search) and bankruptcy searches are conducted at the federal court level.

How Are Statutory Liens Searched Internationally?

This is quite a tricky search in international jurisdictions. There are as many models as there are countries when it comes to recording/searching tax liens. In some countries, tax information (and consequently, tax liabilities) is confidential until it becomes a matter disputed in the court. In some other countries, embargo (asset seizure) searches may be a way of collecting information on tax debts. Generally, tax enforcement mechanisms outside the US are a matter of administrative and judicial process.

Conclusion

Lien searches are an important part of due diligence for financial transactions and business deals. A cross-border transaction involving due diligence necessitates consideration of jurisdictional rules and nuances and requires several considerations, including variances in the way that liens are recorded and searched in different countries.

This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Article 9 Filing, Searching and Due Diligence, International Corporate Services, Intellectual Property Due Diligence, International Due Diligence