The March 11 opinion by the U.S. Court of Appeals for the Ninth Circuit in IPC (USA). v Kathryn A. Ellis, is a stark reminder to all businesses that sell goods on consignment that the combination of the Bankruptcy Code and the Uniform Commercial Code has virtually eliminated conventional and traditional consignments. In the Ninth Circuit opinion, which would be consistent with 11th Circuit precedents for Florida bankruptcy courts, the appellate court reiterated the statutory mandate that unless a seller of goods on consignment properly perfects a security interest in the consigned goods, should a bankruptcy or other creditor proceeding ensue, the rights of the consignor will be avoided. The opinion even goes further to provide that not only will the consignor’s rights in the consigned goods be avoided, but also the consignor’s rights in proceeds from the sale of the consigned goods will be avoided as well.

Section 679.319 of the Florida Statutes provides that for the purpose of determining the rights of creditors of entities that have possession of consigned goods for sale, unless the consignor has perfected a security interest in the consigned goods, including, but not limited to, filing a financing statement with the appropriate Florida authority, the rights of creditors of the entity in possession of the consigned goods will be superior to the rights of any consignor. The placing of the goods in the possession of the consignee gives rights to the consignee to sell the goods, but any reservation of title without a security interest perfection by the consignor is ineffective as to creditors of the consignee. This is reinforced by the definition of “security interest” in Section 671.201 (38) of the Florida Statutes.

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