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We want to secure equipment at a chain restaurant as collateral. On the security agreement, should we list all the equipment individually or should we just state that we are taking all equipment at the restaurant as collateral? – IBA Compliance Connection

IBA Compliance Connection

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We want to secure equipment at a chain restaurant as collateral. On the security agreement, should we list all the equipment individually or should we just state that we are taking all equipment at the restaurant as collateral?

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We believe that you may include the equipment on the security agreement as a category, rather than listing each piece of equipment separately. To be enforceable against the debtor, the security agreement must include a “description of the collateral,” meaning a description by specific listing, category, type, quantity, formula, etc. At least one Illinois court has held that a category of “equipment” was sufficient to describe the collateral for purposes of a security agreement. (For purposes of a financing statement, by contrast, a blanket description — “all assets” — is sufficient, without even listing categories of assets.)

For resources related to our guidance, please see below:

  • Illinois UCC, 810 ILCS 5/9-203(b)(3)(A) (a security interest becomes enforceable when value is given, the debtor has rights in the collateral or the power to transfer it, and when the security agreement provides a description of the collateral)
  • Illinois UCC, 810 ILCS 5/9-108 (collateral description is sufficient if “the identity of the collateral is objectively determinable”)
  • In Re Phipps, Case No. 08-40685 (Bankr. Ct. S.D. Ill. 2008) (court held that the description of collateral by the category of “equipment” was sufficient under the UCC to make possible the identification of the collateral described)