backOn May 29, 2026, the United States Bankruptcy Court for the Southern District of Texas (the “Court”) issued a summary judgment order in an adversary proceeding between plaintiff Evolution Credit Opportunity Master Fund II-B and affiliates (“Evolution”), First Brands Group, LLC and affiliates (“First Brands”), and Wilmington Savings Fund Society, FSB, as administrative and collateral agent for the DIP lenders (the “DIP Lenders”). The dispute centered over whether Evolution holds a perfected security interest in approximately $60.5 million of non-purchased receivables of certain First Brands subsidiaries, including Strongarm, LLC, Carter Fuel Systems, LLC, Trico Products Corporation, ASC Industries, Inc., Fram Group Operations, LLC, Brake Parts Inc. LLC, and Champions Laboratories, Inc. (collectively, the “Receivable Sellers”). The Court held that Evolution does not have a perfected security interest in non-purchased receivables with priority over the debtor-in-possession (DIP) lenders’ interest in those receivables due to its failure to provide adequate notice of collateral scope, as required by the Uniform Commercial Code (the “UCC”).
Background: In March 2023, Evolution and the Receivable Sellers entered into a Master Receivables Purchase Agreement (the “MRPA”), whereby Evolution purchased accounts receivable. Section 5(G) of the MRPA separately granted Evolution a broader security interest in all of the Receivable Sellers’ receivables – including those not sold and purchased – as collateral for the Receivable Sellers’ obligations. However, Evolution’s UCC-1 financing statements filed in Ohio, Delaware, and New York described the collateral only as “[a]ny and all present and future Receivables transferred or purported to be transferred to the Secured Party [Evolution] pursuant to” the MRPA, collectively defined as the “Purchased Receivables,” and selected a “Seller/Buyer” designation.
Perfection and the Notice-Filing System: The Court explained that (i) Article 9’s “notice filing” system requires a financing statement to “indicate” the collateral covered, and (ii) the primary purpose of the system is to put the public on notice that a secured party may have a security interest in the collateral described. Under UCC § 9-504, a financing statement sufficiently indicates collateral if it either describes the collateral pursuant to UCC § 9-108 or provides an indication that it covers all assets or all personal property. Evolution did not use the “all assets” safe harbor; therefore, it was required to satisfy § 9-108’s “reasonably identifies” standard required by Article 9 of the UCC as enacted in New York. The Court held that Evolution’s use of the defined term “Purchased Receivables” paired with the “Seller/Buyer” designation communicated to a reasonably prudent creditor that the filing reflected a purchase transaction, not a pledge of all receivables. Further, the phrase “purported to be transferred” was not a textual back door expanding the collateral description beyond the defined term. Critically, the Court emphasized that the notice-filing system is not designed to require third parties to obtain and understand the underlying agreement to determine the collateral’s scope; the financing statement itself must provide inquiry notice, and third parties can only be prompted to inquire further about collateral the financing statement has “indicated.”
Effect on Priority: Because Evolution’s security interest in the non-purchased receivables was not perfected, its lien was subordinate to the DIP lenders’ properly perfected superpriority security interest, and summary judgment was granted in the DIP lenders’ favor.
The decision reinforces the requirement that a secured party’s financing statement must, on its face, provide a reasonably prudent creditor with notice of the collateral claimed. Using defined terms and transactional designations in a financing statement is ill advised because courts may interpret them according to their ordinary meanings and not the collateral described more broadly in an underlying purchase or security agreement. It is of the utmost importance to independently and clearly describe collateral rather than rely on a description exclusively tied to a separate agreement.