Rancher’s Legacy Meat Company (Rancher’s Legacy) was engaged in the meat packing and processing industry. The company was founded as the Unger Meat Company (Unger) in 2010 by James Ratcliff (Ratcliff). Ratcliff provided start-up funds to Unger totaling $14 million. This funding was collateralized by a security agreement dated December 3, 2010, granting Ratcliff a security interest in “all of [Unger’s] equipment, inventory, lease agreement, accounts receivable, furniture and fixtures, whether now owned or hereafter acquired, together with all proceeds and products thereof and replacements therefor.” Ratcliff filed financing statements with the Minnesota Secretary of State’s office perfecting his interests in December 2010 and January 2011.
In May 2014, Unger reorganized and changed its name to Rancher’s Legacy. Ratcliff was aware of the name change. As a result, Ratcliff’s financing statement lapsed four months later in September 2014, and his security interest became unperfected. In November 2015, Ratcliff filed a continuation statement, listing the company’s name as “Unger Meat Company.” In January 2019, Ratcliff filed an amendment listing the debtor as “Rancher’s Legacy Meat Co.”
Ratcliff sought collection on the notes at that time, but Rancher’s Legacy filed for bankruptcy in September 2019.
Ratcliff contended that he was a perfected secured creditor in bankruptcy as his subsequent filings revived the lapse of perfection and operated to re-perfect his financing statement. In response, Rancher’s Legacy argued that although Ratcliff did have the ability to re-perfect his security interest at any time after it lapsed, the appropriate procedure for accomplishing this task was to file a new financing statement which Ratcliff never accomplished. Ratcliff’s subsequent filings were attempts to continue a perfected security interest that had ceased to exist. Rancher’s Legacy argued that Ratcliff’s interests remained unperfected, and it could thus avoid Ratcliff’s claimed lien.
MICHAEL E. RIDGWAY, CHIEF UNITED STATES BANKRUPTCY JUDGE: Two things are very clear from the plain language of [the] Minnesota Uniform Commercial Code: (1) a UCC-1 Financing Statement becomes “seriously misleading” when the company to which it refers goes through a name change; and (2) from the date a Financing Statement becomes “seriously misleading” due to a name change, it is only effective to perfect security interests in collateral acquired by the debtor for four months following the name change—unless an Amendment is filed within those four months. The next logical inquiry, then, is what happens to the security interest upon its lapse at the end of those four months? Minnesota Statutes provide answers for this question as well.
Under Minnesota law, once a security interest becomes unperfected, it is deemed to have never been perfected. Here, Ratcliff admits that his perfection lapsed.
Unger Meat Company became Rancher’s Legacy Meat Co. on May 6, 2014. When this occurred, the name on Ratcliff’s filed Financing Statement became “seriously misleading.” At that point, the Financing Statement was effective only to perfect Ratcliff’s security interest in collateral acquired either before May 6, 2014 or within the four months from that date. In other words, on May 6, 2014, the statutory “clock” began to steadily track the four-month time period within which Ratcliff had the opportunity to prevent his original UCC-1 Financing Statement from being rendered ineffective. Ratcliff failed to file anything in that four-month time period. As a result, the 2010 UCC-1 Financing Statement he filed in 2010 became ineffective, his interest lapsed, and his lien became unperfected. After September 6, 2014, any property the debtor acquired was unencumbered by Ratcliff’s interests.
The lapse of a security interest’s perfection does not mean the interest itself ceases to exist. However, without a perfected interest, a secured creditor is in a precarious position, since any new creditors registering interests in the same collateral would gain a priority status over the unperfected secured party.
Conveniently for secured creditors, re-perfecting a security interest is relatively straightforward; as long as the language used in the parties’ security agreements provides for it, secured parties may file a second Financing Statement after the lapse of an initial Financing Statement.
A Financing Statement is defined by Minn. Stat. § 336.9-102(39) as “a record or records composed of an initial financing statement and any filed record relating to the initial financing statement.” A UCC-3 Continuation Statement, on the other hand, is defined by Minn. Stat. § 336.9-102(27) as “an amendment of a financing statement” (that also meets other requirements). Therefore, by definition, a UCC-3 Continuation Statement is designed to amend a UCC-1 Financing Statement; it is not designed to stand on its own or operate as a UCC-1.
The available case law, while sparse, confirms that once a Financing Statement has lapsed, a Continuation Statement cannot revive it: “… after a financing statement has lapsed for failure to file a continuation statement within five years, nothing remain[s] to be continued and a subsequently filed continuation statement [is], therefore, ineffective.” In re Ellingson Motors, Inc., 139 B.R. 919, 924 (Bankr. D. Neb. 1991).
In the present case, no one contests that Ratcliff had the right and ability to re-perfect his security interest at any time—the parties’ security agreement provided for that right, and the interest that Ratcliff had in the debtor’s assets was not itself extinguished simply because the perfection lapsed. The correct method for accomplishing a re-perfection of his interest was for Ratcliff to file a UCC-1 Financing Statement. This is not, however, what Ratcliff did. Instead, he filed two UCC-3 documents long after his interests became unperfected and his Financing Statement became ineffective—and neither of these documents fulfilled the required role of an effective Financing Statement to perfect Ratcliff’s interest and secured status. Had Ratcliff instead filed a UCC-1 Financing Statement on either of these occasions, his interests would have been re-perfected, and he would have been a properly secured creditor for purposes of this bankruptcy case. As it is, however, Ratcliff failed to re-perfect his interests in Rancher’s collateral after the interest lapsed (by his own admission) on September 9, 2014.
Therefore, when this chapter 11 case was filed in September 2019, Ratcliff’s interests were unperfected; he had the status of an unsecured creditor. As such, his liens can be avoided for the benefit of the broader bankruptcy estate.

CRITICAL THINKING:
Why did the court declare Ratcliff’s security interest to have lapsed? How could Ratcliff have protected his substantial financial stake in Rancher’s Legacy?
ETHICAL DECISION MAKING:
The court refused to excuse Ratcliff’s failure to renew his security interest despite the harshness of the result. Should this harshness excuse Ratcliff’s failure? Do you believe Ratcliff’s arguments were made in good faith or simply an effort to excuse his failure to renew? How would you define good faith in these types of transactions?